By Shirah Foy, MSc Strategy Student at Aalto University
For more than a decade, Finnish researcher Sakari Virkki developed an investment portfolio whose annual rate of return at the end of 2012 was 129.24 percent above that of the S&P500, an index generally acknowledged as the leading gauge of performance in U.S. stock markets.
Employing his new methodology at an incredibly low operating cost, Virkki could have developed his model into a high-profit investment bank and retired early to a private island.
But he didn't.
Instead, Virkki joined forces with economist Akseli Virtanen to establish Robin Hood Asset Management Cooperative, a self-purported alternative investment model that challenges the big banks.
Unique to Robin Hood is its profit allocation structure. Members retain 50 percent of their profits for themselves and the rest is put toward the Robin Hood Fund, a community pool which may, in the future, be dispersed as interest-free loans, grants, or other resources. In an organization where all members receive one vote, regardless of how many shares they own -- and where everyone's voice is heard, no matter how long it takes -- the task of designing a system through which projects could be selected and funded is a sizable undertaking yet to be completed.
"Even if Robin Hood might look like a purely financial operation," Virtanen says, "it is in its essence a social experiment... an experiment on the cooperation to come."
One of the growth challenges Robin Hood faces is convincing potential members to relinquish 50 percent of their capital returns. Hoping to appeal to a larger group of prospective "Robins" -- as members are affectionately called -- the cooperative will offer more conservative profit allocation options in 2013.
It wasn't an easy decision for Managing Director Jan Ritsema, who writes, "Greediness and generosity ... With this mix every investor is confronted; that is for me the RHAMC."
With the cooperative's beta year scheduled to end in July 2013 and a serious global membership drive about to begin, small development teams meet in cafes and classrooms at Aalto University's School of Economics to plot out the future of Robin Hood. Their board meetings and development workshops can be described as orderly chaos; topics change rapidly from a passionate discourse on the financialization of the economy to the existential philosophy behind the cooperative's logo.
Robin Hood sells itself as another way to Occupy Wall Street and a solution which, according to Virtanen, "bends the financialization of [the] economy -- which is a fact -- into the benefit of the precarious worker." At the core of the cooperative is an international group from all walks of life, such as artists, academics, economists, entrepreneurs, philosophers, and more, who recognize the negative effects of a system in which the means of production include not only giving your time, effort and attention, but also giving up your soul -- your language, creativity, affects and emotions -- to your work.Virtanen explains:
Robin Hood is a critique of these relations, these conditions, for example: that you need to work to get access to money, or more often first take debt, and then work. Robin Hood tries to provide access to money which is not tied to the necessity to work. Robin Hood tries to think of another relationship with money, not as binding us with debt and capitalism as a historical form of production, but as a means of freedom, escape, and increase of independence. It is good to have some money in your pocket. It gives you freedom.
Like the legendary archer of Sherwood Forest, Robin Hood as a cooperative aims to empower the laymen and what its many PhD-holding members refer to as precarious workers, the increasing portion of the population who work relentlessly but are not able to achieve financial stability. The cooperative's modus operandi is to provide a rate of return rivaling that of the world's top investment banks at a fraction of the cost.
The extraordinary returns which allow for a competitive personal return, even after donating to the Robin Hood Fund, are made possible by Virkki's discovery of a third paradigm of investing, what he calls "competence analysis." The system operates on the premise that competencies such as knowledge, education, experience -- all factors that affect investors' performance -- are not evenly distributed in the market.
The investment analyst behind Robin Hood is a virtual agent which monitors the public feed of select stock exchanges and tracks the competencies of various investors and their stocks in many-to-many relationships, capturing the wisdom of the crowd and creating an agent whose recommendations are based on the consensus among highly competent investors. For the past ten years it has mapped and ranked the activity of all of the 10,000 investors and 30,000 instruments at work in US stock exchanges; a continuously updated database provides a clear breakdown of the best investment options.
Robin Hood portfolio (International Brokers account number U1078169) performance August 2012 - July 2013; Figure courtesy of International Brokers.
If Virkki was managing the fund in the United States, it would have been ranked the third best-performing portfolio in the country in 2012, compared with Newsweek's 2012 Rankings. Competence analysis revolutionizes efforts to discern and allocate resources to the most efficient users.
The 21st century Robin Hood doesn't need to pillage royal carriages; the merry men have innovated their tactics.
Members of the Robin Hood development team; Photo courtesy of Robin Hood Asset Management Cooperative.
Shirah Foy is a writer for Student Reporter. We are a journalism incubator and online media outlet, providing media coverage of events and featuring current topics in management and economics around the world.
This post is part of a series produced by The Huffington Post and the Schwab Foundation for Social Entrepreneurship, in recognition of the latter's Social Entrepreneurs Class of 2013. To see all the post in the series, click here.
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