Alan Howard, founder of hedge fund Brevan Howard Asset Management, is one of the investors in macro analytics provider Quant Insight as asset managers increase their spending on alternative data.
Quant Insight has completed a funding round with investors who include Howard and Jens-Peter Stein, co-chief investment officer and founder of hedge fund Stone Milliner Asset Management. Qi said more than 80% of capital raised came from clients.
Mahmood Noorani, founder and chief executive of Quant Insight, told Markets Media: “Last year was proving the concept and we signed up more than 100 clients. The next wave is to make the platform easier to use and more personalised.”
The firm’s analytical framework was developed over six years to collect and cleanse independent data so that it statistically models the impact of a select number of fundamental macreconomic drivers on the price of a range of assets. Professor Michael Hobson, Vice-Master of Trinity Hall and Professor of Astrophysics in the Cavendish Astrophysics Group at the University of Cambridge, is an academic advisor. Qi has said that its model has never been more than 70 points away from the market for the S&P 500 over the last five years.
Howard said in a statement: “Qi helps untangle complex markets and identify what is driving asset prices. I can see many applications for Qi’s technology and am pleased to support them in their expansion.”
The fundraising will allow Quant Insight to accelerate its expansion in new geographies and products.
“The US is easily the biggest market so will we opening an office in Boston in the next few months,” added Noorani. “We are also looking to have a presence in Singapore this year as Asian fund managers feel underserved compared to New York and London.”
He continued that Quant Insight clients have said they want the firm to know who they are and their interests. The firm has changed the back-end of its platform to send personalised push alerts and notifications, and will also develop apps and use more natural language abilities so they are integrated into fund managers’ workflows.
“Over the coming year Quant Insight will focus less on written reports and much more on notifications and push alerts, workflow integration and products for the equities space,” added Noorani. “We also plan to launch a phone app for the retail market and will apply for regulatory approval in jurisdictions including the US, Eurozone, UK, Singapore and Japan."
In March this year Quant Insight announced a strategic partnership with Predata, the New York-based predictive analytics platform, to analyse the impact of geopolitical events on the macro environment.
Noorani said: “They calculate probabilities such as the Hard Brexit index and the Nafta cancellation index which will be incorporated in our API in a few months.”
For example, in February Predata predicted a move in Japanese yen one week before the actual US dollar/yen increase.
Matt Frame, trader and Qi client at 3G Capital, New York, said in a statement: “Qi’s analytics are a breakthrough in constructing thematic equity baskets, and in defining the macro characteristics of single stocks as well as overall equity portfolios. As first-to-market for quant macro analytics, I see rapid growth potential for Qi across the industry.”
Demand for alternative data has been boosted by MiFID II, the European Union regulation which went live this year. MiFID II requires unbundling research payments from trading commissions. Fund managers can either pay for research themselves from their P&L or use a research payment account, where the budget has been agreed with the client.
“There is more price pressure since MiFID II with banks leading the race to the bottom,” said Moorani. “However, after speaking to more than 500 portfolio managers over the last two years we have found that no other firm does what we do in providing macro data analytics rather than subjective opinions.”
Consultancy Greenwich Associates said in a report, Seismic Shifts: The Future of Investment Research, that although MiFID II only applies in the EU, the impact is expected to be global.
“Large multinational asset managers with operations in Europe will gravitate to the stricter regime, rather than maintain separate business models in different regions,” said the report. “Even asset managers with no footprint in the EU may feel the urge to 'soft comply' in order to remain competitive in a global asset-gathering market.”
The survey found that 71% of investment professionals expect to see increased unbundling globally and 70% are already paying for investment research themselves, or expect to in five to 10 years.
In addition, 39% anticipate being more reliant on independent research providers and 70% are either currently using alternative data or plan to in the next year.
Richard Johnson, vice president in consultancy Greenwich Associates’ market structure and technology practice, focusing on equities and financial technology, said in the report that the most common type of alternative data used is web-scraped data.
“For example, by tracking prices and inventory on public retail websites, it is possible to ascertain the performance of brands and companies,” added Johnson. “While some companies aggregate this data and resell it, others employ their own teams to collect the data using their proprietary technology or publicly available software.”
Search trends and expert networks are the next most popular types of alternative data. A majority of firms expect to integrate alternative data more tightly with their investment process and to increase budgets for alternative data sets.
The survey also found that only 17% of firms are currently using artificial intelligence as part of their investment process but more than half, 56%, expect to increase the level of integration with the investment process and recruit additional internal expertise.
Johnson concluded that investment banks will need to radically rethink their business models and prepare for a world where asset managers are increasingly bringing research and execution functions in-house.
“Asset managers will need to evolve their business models so that they have the necessary human and technological capital to take more control of their investment research process,” he added. “Financial information systems and other vendors have an opportunity to assist the asset management industry in this transition by making sure portfolio managers and investment analysts have the necessary data and tools at their fingertips.”