22. Robin Hood: The Merry Adventures of an Asset Management Cooperative
Once upon a time, researcher Sakari Virkki found that the investment algorithm that he had developed after years of hard work would yield an annual rate of return higher (approximately 130 percent) than that of the S&P500.1 Unlike what most people would have done, he partnered with economist Akseli Virtanen to establish an asset management cooperative. Robin Hood Minor Asset Management Cooperative was thus born in June 2012 in the midst of the European financial crisis. Drawing on the legacy of Robin Hood, the cooperative intended to challenge the conventions and practices of the dominant system. Describing itself as a fund, business, art, bold philosophical and economic experiment Robin Hood aspires to share and democratize the power of finance or as Virtanen says, to “bend the financialization of economy” for the common good. Not only does it allow minor asset investors to benefit from the same systems that cater to Wall Street, it also allows members to direct a percentage of the returns toward philanthropic, artistic, or other fund-sponsored projects.
1The prominent U.S. stock market performance estimate.
WOW: Robin Hood and the Parasite Algorithm
The Robin Hood’s investment portfolio is guided by the “parasite algorithm,” which identifies the most profitable investors and patterns across prominent U.S. stock exchanges such as NYSE, NASDAQ, and AMEX. Virtanen explains that the process is “pretty straightforward.” First SEC filing data is collected, combined, organized, adjusted, and corrected. The algorithm calculates the performance of every actor by every instrument resulting in a competence map over the market. The distribution of this competence is used to invest in those stocks where the risk exposure of the most competent actors is very high. The fund follows the swarming behavior and imitates the emerging consensus action of the financial establishment. Thus far the fund has been very successful as the value of the Robin Hood portfolio rose 30.75 percent in the first year. And after the second year now, it is up 40.15 percent. It means that Robin Hood beats almost all of the funds operating on the U.S. stock market in the world.
Robin Hood and the Profit Allocation Structure
The profit allocation structure of Robin Hood is exceptional. When a member buys shares, he has the option to choose (six options) how the net profit should be divided between himself and Robin Hood Fund. When the shares start growing in value, the profits are split between the cooperative and the person, according to different options like 50/50, 80/20, etc. The amount which is remaining after the members partake of the profits is put toward a community pool called Robin Hood Fund. The members can vote and decide how to allocate the money in this pool (e.g, as no-interest loans or grants). Every member receives only one vote, irrespective of the number of shares they own. This makes sure that the decision-making process is collective, democratic, and not unduly influenced by any one person(s). Virtanen compares this to a “social experiment on the cooperation to come.”
A board of (maximum) six members, selected according to the rules of Robin Hood, includes Akseli Virtanen (chairman), Tiziana Terranova, Tere Vadén, and Liisa Välikangas. Currently, it has more than 550 members from different walks of life, from more than 15 countries. The shares can be bought by anyone, anytime and are in turn invested in a suitable stock portfolio. The membership fee and the fee of each share are both €30 each. Each member is required to buy at least one, “obligatory” share.
An investor in Robin Hood can always see how much profit his share has generated (for himself and for Robin Hood Projects) and what amount is allocated for the Robin Hood Fund, both via the robinhoodcoop website. The results of investments are also available and are updated every day. The website also gives information about currency fluctuations and their relative effects on the investments.
SO WHAT Makes Robin Hood a Positive Outlier?
In the whole world, approximately 10 big investment banks control 90 percent of the whole derivative market. This is close to $1400 million billion and 20 times the GNP of the entire world—a figure reflecting the leveraging of debt for profit. These profits from these interest-driven financial instruments, however, are out of reach of the average individual who only carries the debts and the associated risks. There is also an asymmetry between people whose income is not tied to the necessity to work and those whose income is. This is where Robin Hood differs from conventional asset management firms.
Unlike conventional financial firms, the focus of Robin Hood is on common men. It speaks to the portion of the population who, even after working persistently, are unable to invest. Robin Hood Cooperative’s philosophy is to be able to service these “precarious workers” with a rate of return that matches the world’s top investment without the costs. Robin Hood is the very first “cheap bank” of asset management. It has extremely small operating costs when compared to normal asset management firms like ordinary and private banks. After all, Virtanen argues banks typically spend money on 20 to 30 salespeople for every analyst they employ.
Challenges
Many in the financial community do not know what to make of Robin Hood. The financial regulators and civil servants have been neutral on the fund and its activities. The media was initially skeptical but has been reassured having seen the books and formal audits. The financial professionals, however, have been the most suspicious of all. Virtanen suggests “they are unable to think finance in any other terms than those established in their education.”
Ironically, the unconventional strategy of Robin Hood, the very element that differentiates it from the traditional firms, may result in Robin Hood being misconstrued as a fraudulent practice. Potential investors, being asked to allocate some of their profits to the fund may mistake Robin Hood to be a fake, Ponzi scheme. As Robin Hood is not a bank offering financial services, it does not have a Finnish Financial Supervisory Authority (Finanssivalvonta) bank permit, per se. These heavy regulations enable big banks in blocking new entrants such as Robin Hood from entering their field. By breaking the industry norm, what it does is something so new that it could come across as confusing and untrustworthy. Robin Hood sees that the only way to overcome suspiciousness is to keep educating, explaining the paradigm, providing audited information and documents, and doing everything by the book. This may become easier as the 2014 EU Directive on alternative investment fund (AIF), a category that Robin Hood may potentially fall under, aims to substantially simplify reporting duties and capital requirements.
Outlook
Robin Hood Cooperative is an ingenious new initiative for making finance available to a wider public. In addition, through Robin Hood, people think of money not just as a means of payment and exchange, but also as a means of independence and escape from the archaic financial market fiends. Virtanen reflects that Robin Hood is an experiment in creating a new social form. In doing so Robin Hood certainly aims to provoke the system and feels comfortable experimenting on the “wild side of finance.”
From the Perspective of Dr. Liisa Välikangas, Board Member, Robin Hood Minor Asset Management (with Comments from Dr. Akseli Virtanen)
Becoming Robin Hood and Its Minor Implications
The origins of Robin Hood date back to 2012 in Finland. Dr. Akseli Virtanen, one of the founders, explains in an interview (Lovink, 2015): “So, minor asset management is a very special way of managing assets—a way that makes something new possible when it looks like nothing new is possible. A becoming. This is our invention. . . .” Such an invention matured during the founder’s stay at Aalto University’s Future Art Base from which the organization was expelled due to its radical or perhaps hard-to-imagine approach, called by some a freak in the world of finance, others suspected a pyramid scheme. But rather than an analytical scheme looking for an economic rational, Robin Hood was rather an aesthetic, the future art of finance, or its “wild side.”
Minor plays an important part, already in the name of the organization. “But it is also management of the assets of minorities . . . who will and can never become major, but will always remain like spit in the salad. And it is the management of minor assets, small assets, this is our other particularity: a lot of small assets working together. We don’t mind the connotation of being underage—not legally responsible, a minor, in a process of still becoming—neither as an attribute to our way of managing assets or to the assets managed, there is something true there.”
After being expelled from Future Art Base, Robin Hood had to reimagine itself as a fully autonomous entity. It lost the project funding that Future Art Base provided for some of its founders and some of its affiliates. Robin Hood had staged various artistic exhibitions around the world, including Finland, Germany, and Brazil; now was the time to reimagine the economic side, to radically expand capital under management to survive as an organization. Robin Hood had reimagined itself as a global financier.
Robin Hood expanded to the United States in 2014 together with its founder who moved to University of California, Santa Cruz. The new U.S.-based Benefit Corporation started exploring the possibility of launching its own cryptocurrency for its members to trade. The members could use the “Hoodies” to invest in each other’s artistic enterprises. This would also create a secondary market for Robin Hood ownership, which would become more liquid as a result, and giving the members use of an alternative form of capital. (Currently selling one’s shares is cumbersome.) The cryptocurrency invites interest from many Silicon Valley investors, and it opens up yet another strategy to “make something possible when it looks like nothing is possible” by refining the arenas for action. The “Hoodies” (the preliminary name) are likely backed by the Robin Hood investment portfolio, to begin with, and they allow for entirely new way of transacting using an emergent technology called the Blockchain. Such synthetic finance is the next Robin Hood frontier.
Amplification of impact is baked in to the concept of Robin Hood: “ . . . it is always something collectively produced. It changes power relations by changing the conditions of situation. It allows for ‘a people to come’ by opening new routes and processes of becoming.” Robin Hood has gained new members—the member base exceeding 500 at the time of this writing—and appears to be riding a trend that suggests further amplification. “[W]hat is really important is the approach behind it, i.e., the understanding of the changed nature of creation of value. That is why we are now capable of coming up with new products too.” Its political dimension has potential transformative consequences. “[It] is an attempt to think about political means, means of change. . . . [The concept of] minor is something that always brings together personal and political. It is . . . about making our existential territories more habitable.”
Whether Robin Hood becomes something more than a fading footnote in the collective story of the precariat, capitalism, and democracy, remains to be seen. Yet it has implications to understanding how imagination, or learning from things that have not happened yet, can be used to creating novel strategy. Robin Hood is a play in the future, and as a play, it requires the engagement of its audience, or its members, for making it real. To assess it with rational financial logic is to undervalue its true meaning and potential strategic impact: It is an aesthetic (Strati, 1992) rather than a calculation, and a minor (Deleuze and Guattari, 1975) rather than a major enticement to novel thinking and to the creation of new opportunities, even when they are precarious.