Singapore fintech firm Noviscient is looking to change the way investors find alpha via a technology driven platform that helps select and allocate to quality alpha funds.
Scott Treloar, founder at Noviscient in Singapore, said the technology was similar to how Amazon provided a matching service for customers and suppliers. Noviscient’s platform, however, allowed the firm to tailor custom solutions for investors from trade data collected from participating funds, making it more than just a matching service.
“Amazon is a bit more of a matching platform… people know which book they want, but in financial services it is more complex and dynamic,” Treloar said. “Investors need help transforming the inputs into a custom solution, so we’re trying to build our capabilities to take in, at low cost, information about the different return streams and work out, using Structured Dynamic Learning, how to model these return streams and the best way to combine them into customized products for investors.”
Noviscient launched about three years ago and has a core team of five executives with a strong mix of technology, machine learning and financial markets skills. The firm uses algorithms for selecting quality alpha hedge funds and then dynamically allocates to construct tightly risk-controlled investment products customized to meet investor needs.
“While our platform approach eliminates the two big costs faced by investors, namely searching for excellent hedge funds, and the extensive due diligence required to ensure the capital stays safe.”
Its proprietary machine-learning technology, the so-called Structured Dynamic Learning, generates better performance for investors through smart selection and allocation, according to Treloar. “While our platform approach eliminates the two big costs faced by investors, namely searching for excellent hedge funds, and the extensive due diligence required to ensure the capital stays safe.”
The platform currently has 12 market neutral funds providing data streams. While institutional investors are the initial clients, the scalability of the platform allows the firm to offer increasingly granular products for smaller investors in the future.
Treloar added the platform was looking to form partnerships with market neutral funds that trade liquid securities, such as equity, futures or fx. “The second criteria are that they need to not have a ‘crash risk’. So, no short volatility strategies that look good for a while, but blow up,” he explained. The third criteria are that the funds need to have alpha, or some sort of excess return, Treloar added.
He said the funds already signed on are typically innovative ones that find it difficult to secure allocations from large institutional investors. “There are problems with these institutional investors needing to allocate in very large amounts and so it’s just not worth it for them to go and look for a smaller, more interesting funds,” he said. “So that’s the kind of structural blockage in the industry. There’s an enormous amount of effort on both sides trying to find good funds or find capital. The end result is that the capital is going to the safe places, the brand-named funds. So not necessarily quality alpha funds that investors really need.”