Buy-side Fintech, 5 years later
It’s hard to believe that it’s been almost five years since I took the stage at the first annual AIR Summit, in Ft. Lauderdale.
Essentia was then not even a year old, and I was one of a multitude of fintech startups there to give the Heads of Trading from major American active fund management firms a peek at what “the fintechs” (a newly coined term) were up to in their space.
Back then, there was clear curiosity from the trading desk about what new technology could bring, but also an overriding sense that buy-side organizations weren’t ready to invest in innovation. How things have changed!
This year, Essentia returned to AIR Summit 4.0 not with a pitch but as a sponsor. That acknowledges how much I valued the experience of being a speaker back then, but also my interest in seeing the event live on, now that it’s been spun out of Franklin Templeton by hosts Bill Stephenson and Morgan Dunbar.
The meat of the event is a series of fascinating pitches from 20 fintech companies, each one new to AIR, and given 10 minutes to explain what they do. Spanning data management, analytics and AI, all are squarely aimed at helping the investment management industry to generate more alpha (AIR stands for Alpha Innovation Required).
I’m pleased to say that this year’s event was both as relevant and as dynamic as it was in 2014, but with a clear “we’re ready to act” vibe from the attendees that simply wasn’t there four years ago.
I talk to many fund managers and investment leaders - clients of Essentia and people I worked with in my former life as a PM. In the last 18-24 months, I’ve seen a definite uptick in the appetite for innovation from these firms, mandated from the highest levels. That pattern was confirmed at AIR.
Anyone who has worked in financial technology for a while can tell you that asset managers are known for their conservative approach to change. Now, however, there seems to be a recognition at board level that new responses are needed if active (human) fund managers can rise to defeat the challenge of passive investment and pressure on fees. Outsourcing that imperative is, in many cases, easier than trying to build it in-house.
One investment management delegate at AIR Summit 4.0 put it well when he told me, “We just don’t have the culture and capability to innovate internally as fast as we need to. So companies like yours and these here at AIR are a stepping stone to making sure we are using data and technology as well as we should be.”
Below, I’ve listed some of the fintechs at AIR that stood out for me. If you attended the event this year, or recognize any of the presenting fintechs (list available here), I’d be interested to hear your own impressions in the comments section.
Personally, I was particularly interested in Elsen, which allows firms to simplify in-house data, reduce code, and optimize workflow. At Essentia, we are intimately aware of the problems that large institutions face when it comes to cleansing, normalizing, and maintaining their data so that they can begin to get insights out of it. Crux, another AIR fintech worth following, also specializes in cleaning and standardizing data for both users and suppliers.
Underutilization of data is a big thing - we are constantly hearing about all of the amazing insights companies can be gleaning by using technology to connect the dots between different data sets, but the reality is that, by PWC’s estimate, fund management firms are only leveraging 5% of their existing internal data. For a lot of firms, there is a necessary investment to make in cleaning up their data sets, so that they can be leveraged.
Essentia’s own analytics focus on fund manager behavior so I was fascinated by what Distill Analytics is doing. They are able to generate remote psychometric profiles of how people think and what drives them to act, without asking the individual anything. They are also able to differentiate talk from action, thereby allowing them to isolate and analyze speech in a new and cognitively advanced way. These are data sets that would be very interesting in the context of the work we do at Essentia.
There were several vendors with alternative data sets being marketed for inclusion in the investment research process. Thasos mines mobile phone information to provide real-time location data insights; Prattle helps automate financial research by monitoring and quantifying market-moving language in Fed statements and the like.
And then there were vendors focused on connecting the dots. Predata, for example, provides predictive analytics for geopolitical risk, helping investment and research teams find causal links within the ever-growing sea of data. And Causality Link uses AI and NLP to help research teams speed up their learning from the reams of financial documents they collect.
Between the pitches were some very interesting keynote addresses covering technology trends. I particularly enjoyed Rich Pi?a from Google, who gave us a glimpse into Google's approach to AI and cloud products for the financial service industry. He also previewed Google’s new “Unfiltered News” beta product, which makes it easy to visualize what is trending in different parts of the world and compare different perspectives on an issue.
Overall, though, the best thing about the AIR Summit, as with most conferences, was the people in attendance. A room full of senior investment management professionals, all of whom are truly interested in exploring how their organizations can scale the technology curve, is a beautiful thing to behold. I also appreciate AIR for being a labor of intellectual love, rather than ANOTHER mass market production; these more intimate, specialist events are where the truly interesting conversations happen.
Essentia hosts its own event for the asset management community, Behavioral Alpha, on November 9th in New York. We first ran the event last year in response to the growing interest from asset managers about how their investment processes could benefit practically from the learnings of behavioral science. If you’re interested in asset management innovation, I look forward to meeting you there*.
In the meantime, congratulations to Bill, Morgan, Mary, and all of the speakers at AIR Summit 4.0 - keep up the good work!
Fintechs presenting at AIR Summit 4.0:
* If you play poker and attend Behavioral Alpha, we’ve laid on something special.