BCI Beefs Up Its Data Analytics

Last week, the British Columbia Investment Management Corporation (BCI) announced the completion of an investment in ClearMacro:
ClearMacro Ltd, (“CM”), the UK-based independent investment analytics provider, today announced the completion of an investment by affiliates of British Columbia Investment Management Corporation (“BCI”).

The management and staff of CM maintain a majority shareholding in the company and CEO Mike Simcock and the executive management team remain unchanged. A representative from BCI has now joined the CM board. CM has continued to expand its capabilities through 2019 with a growing talent base, range of content partnerships (including Prattle, EPFR and Alexandria Technologies), and clients (leading pension funds, insurance companies and hedge funds). This expansion is set to gather pace following completion.

Mike Simcock (CEO, ClearMacro) commented: “With CM’s long-term future as an industrial-grade investment analytics provider secured, CM is poised to establish leadership in the burgeoning market for data analytics in the investment industry. With the capital strength of BCI behind us, we will materially complement our team, geographical presence and grow our access to additional partners and channels.

“CM’s mission is to level the playing field in data analytics for professional investors. We are committed to providing institutional investors and asset managers access to the powerful methodologies and tools employed in systematic quant investing. Investment firms need a short cut to developing future-proofed data strategies, especially given the rapidly changing underlying macro environment, the shifting relevance of various datasets, as well as the accelerating developments in technology. We do the heavy lifting of data selection and processing, helping to turn data overload into an opportunity, and enabling investors to radically reweight their time back to investment decision-making.

“This investment from BCI is an endorsement of the value of industrialising information and decision-making processes at a time when the broader industry is struggling with fee compression (arising from growth in passives and low rates) but explosive informational opportunities.

“We feel truly privileged to be working with a world-class, cross-departmental team at BCI who are forward-looking and fully understand the opportunity to employ cutting edge techniques to better mitigate investment risks and improve return profiles. Our strategic partnership with BCI will put CM in a leading position to provide distinctly open platforms which enable customers to build their own signals and strategies and to choose what information they want to integrate to power their own decision-making.”

Mihail Garchev (Vice President, Total Fund Management, BCI) commented: “BCI has in recent years firmly established our in-house investing capabilities across asset classes. However, we also constantly benchmark ourselves and seek to improve. To that end, we have decided to materially drive forward our abilities to import best-in-class data strategies and tools to support investment decision-making and risk management processes. After extensive research, we are excited to become a strategic investor in ClearMacro and look forward to supporting the company in addressing the significant opportunity in the marketplace.”

In connection with this transaction, Dentons (UK) acted as legal advisor to ClearMacro and Latham & Watkins LLP acted as legal advisor to BCI.

About ClearMacro

CM is a software analytics company founded by institutional investors and technologists for professional investors. The Company provides investment analytics tools to asset managers and other professional investors to make quicker, better informed, and more consistent investment decisions as well as mitigate well-documented human biases. CM selects and curates from the rapidly growing body of data (public and private, financial and market data) and then transforms the information into forward-looking investment signals, delivered via its online platform. CM is further developing its uniquely open-ended platform that can integrate new data or client’s own data into the model. The Company serves a range of institutional investors, insurance companies, hedge funds and anticipates extending coverage to family offices and corporates.

For more information about CM please visit https://www.clearmacro.com/

About BCI

With C$153.4 billion of managed assets, British Columbia Investment Management Corporation (BCI) is a leading provider of investment management services to British Columbia’s public sector and one of Canada’s largest asset managers. We generate the investment returns that help our institutional clients build a financially secure future. With our global outlook, we seek investment opportunities that convert savings into productive capital that will meet our clients’ risk/return requirements over time. We invest across a range of asset classes: fixed income; mortgages; public and private equity; real estate; infrastructure; and renewable resources.

For more information about BCI, please visit www.bci.ca.
Arguably an overarching theme in the investment industry is that active management appears to be under existential threat due to the convergence of multiple forces: the rise in passives, poor performance, untenable cost models (especially in the face of regulatory burdens), low / negative interest rate regimes, and the inability to optimally harness the potential of an exploding universe of available data. The dwindling valuation multiples of asset management businesses is a testament to this.

Equally, although somewhat less visible, public pensions face variations of these pressures too.

Many of the headwinds (passives, interest rates etc) are beyond the control of the fund manager, so I’m interested in exploring those which are within control of the manager: data strategies. Clearly quant firms do this well but much of the buy-side industry appears to be struggling to implement data strategies. In fact, in many cases it is simply lacking in the DNA!

So, on Friday, I had a chance to speak with ClearMacro's CEO, Mike Simcock, who was nice enough to follow up and share these thoughts with me:
Historically, fund managers and analysts have taken investment decisions using suboptimal tools and techniques - often a mix of Bloomberg and Excel, meaning that most of the investor's time is spent gathering information rather than applying it. When key employees move on, the workflow often needs to be re-invented. Inputs to decisions are normally backward-looking, providing minimal insight on future return prospects. And decision-making frameworks are usually discretionary, very exposed to human biases, opaque, and providing little scope for self-learning and adaptation. This is a cost to performance and to the persistence of performance.

More recently, an ever-growing range of alternative data is providing investors with greater opportunities to gain a performance edge. However, it is difficult to determine what data is worth paying for and how to translate this vast information pool into credible investment decisions. In our experience, many firms are talking AI but few are doing anything real. Nevertheless, this is a very ripe topic in the pension industry right now as many institutional investors are rushing to build data strategies in-house from the ground up, yet at the same time are grappling with attracting and retaining the right talent.

This recent article by Oliver Wyman highlights that “although alternative data has been utilized by some asset managers for years, the fear of falling behind has recently prompted most firms to act. Specialist alternative data teams are being created and data scientists are being hired. But, in our experience, many analysts and portfolio managers are unclear about the role data scientists should play in the investment process. Few firms have managed to build the required bridges."

In fact, we would question whether a majority of investors (even relatively well-resourced firms) will have adequate resources to design, implement and maintain a robust data strategy. Investors have traditionally built investment process infrastructures in-house - most well-resourced investment firms have already put in place (or are thinking about it) a data science/quant team. This is a very risk-prone and costly exercise: even before taking into account the cost of the data, which can run into many millions of dollars a year. ClearMacro estimate that the payroll for the data and quant team alone could be up to $30m over a 10 year period.

These challenges are why I founded ClearMacro in 2014. Whilst I was a seasoned institutional portfolio manager, I realized that as one moves higher up the value chain to actual investment decisions, there are still few good technology alternatives available to buy. Sure, there are plenty of systems and tech for data aggregation (Bloomberg et al), for trading and order management and for historical risk analysis etc., but there is still very little to support actual investment decisions, particularly allocation decisions (this gap has meant that most funds don't even consider the normal "build vs buy decisions" - up to now it has been moot. And so most funds try to build their own data strategies).

So, I created CM (https://www.clearmacro.com/) so that investors could take full advantage of the information bonanza. We select and curate from the rapidly growing body of data (public and private, financial and market data) and transforms it into forward–looking investment signals and return insights delivered via an online platform. The emphasis is on speed, informational reliability, managing costs, and maximising flexibility to enable investors to radically reweight their time back to investment decision-making, and make better informed and more consistent decisions.

ClearMacro: Straight-through from data to signals to strategies to your portfolio to decisions, in order to transform data into alpha.

I would best characterise it as "quant in a box": a software platform for institutional investment firms who want to upgrade their data strategy and/or quant tools. Currently, we serve a range of institutional investors, insurance companies, hedge funds and anticipate extending coverage to family offices and corporates. The framework can be employed “off-the-shelf” or built upon internally by investors for a range of use cases.

CM aims to differentiate from other data analytics providers in 3 areas: 
  1. Integration: Application of the data-driven return insights directly onto a user’s portfolio.  
  2. Diversity: Provide users with diversifying analytical tools that map forward-looking returns to different investment horizons and different decision-making styles (judgement & quant/ man & machine) to outperform pigeonholed approaches.  
  3. Open and Modular Access: Architect an open user interface that which will enable customers to build their own signals and strategies, to choose what information they want to integrate into their existing processes, and to personalise the platform’s investment frameworks on every logical level. 
 "Build (internally) versus buy" has always been a difficult choice in any industry over the decades. When it comes to software "build vs buy" decisions in the investment industry, it has typically proven to be a big mistake over the long run to solely choose the build option (due to maintenance, obsolescence, key man risk etc.). Imagine an asset manager building an entire Bloomberg platform internally!

Of course, that mere notion would be laughable now, but in 1985 it wasn’t quite so clear cut! Arguably, we are at a similar early stage in this new wave of building sophisticated data strategies to impact further up the value chain. ClearMacro strongly believe that funds should be careful considering this decision across different elements of their data strategies and heavily weight future proofing themselves.

For example, ClearMacro already is up to 20 employees and has 6 years of cumulative experience and intelligence (not including previous careers!). But even a large pension fund would typically only secure budget for a team of say 4-5 data and quant professionals. So, I think that there will de facto be a capability gap between what even large funds can hope to do in-house and what a best of breed vendor can offer ... and that is just the starting point. When external solutions such as ourselves gain further traction, the gap will only widen, whereas pension funds (and other institutional long-term investors) will often be the victim of internal changes of direction, key person movements, and other distractions.
I thank Mike Simcock for sharing this with me and do agree with him, building such data analytics capabilities internally can be very costly and expose an organization to all sorts of operational risks.

How many times has some "whiz" left an organization and then you have to hire a team of "whizzes" to figure out their coding (in Excel or some other platform) and determine the robustness of their work?

True, outsourcing presents other operational risks (will the firm survive, is the product robust and evolving to maintain its significance, etc.) but the truth is data analytics is a huge business and a key differentiator of success at top hedge funds (typically quant funds) and increasingly at top institutional investors looking to systematize their investment process.

Now, it's important to understand that ClearMacro is a front office tool which doesn't replace the views of the investment managers, it helps them systematize their views in a more efficient manner.
"ClearMacro selects, analyzes, synthesizes and beautifully presents macro and thematic data and insights. We help you build and perfect your investment decision frameworks using ClearENGINE, our SaaS-based quant platform."
Mike Simcock is a former portfolio manager who worked at GIC, T. Rowe Price and Swissca. He can easily manage money but that's not what his firm is doing, it is helping asset managers clean and analyze their data to extract the most relevant information and make better decisions based on their own views of markets.

This is why hedge funds, insurance companies and pensions are using ClearMacro's services to gain an edge and better their overall performance.

Are there other vendors and competitors? I'm sure there are but the fact that BCI took a stake in ClearMacro shows me they did their homework and are very confident in the robustness and capabilities of this provider.

Again, ClearMacro's product is completely customizable technology data which enables your firm to gain an edge in strategic and tactical asset allocation and build more robust strategies internally.

It can be used by front offices as well as risk groups to gain a better understanding of the risks and opportunities available using all available data.

It should be noted, however, that as of now, the system is mainly used for Public Markets (they are working on incorporating Private Markets) and has not integrated ESG as they are trying to ascertain which data provider offers the best ESG data.

The value add of this product is fourfold:
  1. Better and more consistent risk-adjusted returns over time (tap into better information sources and link to allocation strategies)
  2. Clients can build their own frameworks and do their own testing using ClearMacro outputs
  3. Increased operational integrity via lower key person risk
  4. Reduced costs via increased efficiencies (staff, data, reduced reliance on external brokers)
Anyway, in the race for AI talent, maybe it does make sense to outsource some of the front office tools to experts who really understand data analytics and focus 100% of their time on helping clients develop a better framework to implement their views of the world.

If you have any questions regarding ClearMacro, I invite you to reach out directly to Mike Simcock (mike.simcock@clearmacro.com) and request a demo.

Below, Vanguard Group CEO Bill McNabb says there's no place for high-cost active management in a future of lower average returns.

Second, Sandy Rattray, chief investment officer of Man Group, and Heidi Ridley, chief executive officer of AXA Rosenberg Investment Managers, discuss how big data is disrupting investing with Bloomberg's Katia Porzecanski at the Bloomberg Invest Summit in New York (June 2018).

Lastly, Leda Braga, CEO of Systematica Investments discusses how her company employs technology to achieve returns at Stanford University's School of Engineering. Very smart lady, really knows her subject matter well.