AltX capital introduction revolution to cross the Atlantic
AltX, the cloud-based capital introduction platform that makes use of matching algorithms and behavioural data as well as conventional financial statistics, is using the $20 million it raised in its Series B financing in October last year to expand its sale force and broaden its distribution channels. Created by Sam Hocking, the former head of prime brokerage at Bank of America and BNP Paribas, the platform has until now concentrated on building its technology.
“The Series B financing has allowed us to double the size of the team to over 55 people,” says Hocking. “It has allowed us to do more work, not just on the science behind the platform and the development of the technology, but on the distribution. It has allowed us for the first time to really get out into the market and start selling.”
The enlarged client-facing team consists of people with strong relationships on both sides of the industry in the United States. They have all worked in hedge funds, or prime brokerage, or at investors which have put money into hedge funds. The first sales people are now being recruited in Europe, starting in London, where the company has relationships with allocators, funds and a data vendor.
However, the Series B financing had a strategic intent as well. One of its goals was to attract institutional investors with a demonstrable interest in the idea of investing more efficiently. Among the Series B investors is Wells Fargo Strategic Capital (which is led Wells Fargo CFO John Shrewsberry, who previously ran the investment bank), David Bonderman of Wildcat Management (the founder of TPG) and Control Empresarial de Capitales (the company controlled by Carlos Slim).
The involvement of the Slims, one of the largest mobile phone operators in the world, testifies to the ambition of AltX to distribute its services via mobile technology, but his presence on the BlackRock board is equally suggestive. Engaging managers, including the largest manager in the world, is obviously essential to the long term success of the fund. But AltX needs investors as much as managers: it is, after all, a two-way platform.
One challenge for a business such as AltX is the sheer novelty of what it does. Using behavioural science to assess the compatibility of a fund and an investor, rather than a questionnaire, for example, is a development which requires an innovative spirit. AltX has found its pioneers in the $103.4 billion Bessemer Trust, the $30 billion Hall Capital Partners in California, and the capital introduction and wealth management arms of the major investment banks.
A second challenge is that investors do not change their investment managers every day. Even the most active will conduct no more than four searches a year. To ensure the platform stays relevant on a day-to-day basis, Hocking and his colleagues have designed AltX to devour and present information to users unceasingly. The platform has intelligence (of the 55 staff, a third are scientists and engineers), speed (10 million data variables a second), regulatory data (SEC forms ADV, 13-f and 13-d, for example), other data (stretching back 50 years), an appetite for yet more data (it trawls 200 data sources continuously) and news (real-time news, social media and legal documentation are streamed).
“We are using data algorithms to find and disseminate data of specific relevance to our users, and which gives them insights,” explains Hocking. “It is very different from an information service you turn on, and log in to. Our system does the work for you. It is a monitoring tool, and a preparation tool, that ensures you are always armed with the latest information about your managers. The way we are building the technology allows us to do that.”
For asset allocators performing due diligence on a new manager, or monitoring existing managers, AltX ought to be a godsend. At present, they are largely dependent on a monthly valuation report from the manager. “A lot can change at a fund in a month,” says Hocking. “Investors are entitled to know more about what is happening with their investments, and the people who run them. Nobody wants to be the last to learn a crucial piece of information about a manager.” But the AltX service ought also to be useful to anyone presently reliant on multiple sources of data and information, because it integrates them and present the findings in a single format on a single platform, quickly and easily.
But what is the value of AltX to fund managers? Obviously, it is a potential source of money to manage, and AltX is not short of managers willing to share data about their funds. No authenticated manager, however small, is refused. More than 16,000 funds run by over 4,500 managers are on the platform already.
But the value of AltX to managers extends beyond capital-raising. Hocking says managers are already using the service proactively. “AltX is designed to efficiently add depth and sophistication to traditional performance-related analysis,” he says. “Through cross-checking across the analytic platform, and combining quantitative and qualitative measures, managers benefit from thought- provoking insights on performance measures, hedge fund flow and correlations.”
Managers are willing to share data as well as subscribe. “We have had an excellent hit ratio, with managers wanting to subscribe as well as give us data,” adds Hocking. Privacy remains an obstacle for some, while others are extremely fastidious about the type of investors they wish to attract. “We can accommodate them,” says Hocking. “We can ensure only certain classes of investor see their data.”
Filtering data is a lot easier than gathering and normalising it, but AltX has not lost its appetite for consuming data. “Anything you can digitise and automate, and run analytics on, is very interesting to us,” says Hocking. “We are constantly thinking of new ways to use data that create useful knowledge, information and insights. AltX is a powerful combination of human judgment computational power that leads to better insights. I do not think anyone else can match that, in the investment management industry at least.”