Technology has transformed capital markets and continues to do so. Hedge funds, in many instances, were slow to adopt, and adapt to these technological leaps, while others were at the tip of the spear, quant funds are but one example.
However, investor relations professionals, in the main, have been slow to react to these technological advances, and have largely ignored the potential of big data to understand and predict investor decisions. It seems that many investor relations professionals are skeptics when it comes to the question of trusting big data, while others are coming around, and using big data and its companion technologies, such as artificial intelligence, to guide or augment investor targeting strategies.
At the heart of this skepticism lies, not only the massive volume of data, but also the lack of a fundamental understanding of how the data might be employed. This is where algorithms and machine learning come in and collate the intelligence their firms already possess, with other pertinent, available data sources—commonly known as alternative data. Some suggest that alternative data, which is basically data generated by the digital economy, is the least used alpha source on the planet.
While in-house development of such systems is beyond the financial reach of all but the largest hedge fund firms, it is within the grasp of most hedge funds in the form of SaaS…software as a service. One example of this is Q4, a SaaS company which offers a product it calls AI Targeting.
According to Q4’s head of investor relations, Amit Sanghvi, “AI Targeting ingests all of the data of a given fund manager’s portfolio and what he/she bought and sold at different points in time. It then combines that data with information about each company and the historical macroeconomic environment, to determine the underlying decision-making process for that fund manager, when he/she bought or sold a particular stock.”
According to Q4, its AI Targeting software is capable of generating a detailed list of potential investor targets, rated between one and 100, which also includes the five top factors that drive their investment decisions.
Hedge fund IROs ignore this technology at their own peril.
Forward Thinking Investment Relations Officers
Most IROs would agree that proprietary algorithms in concert with artificial intelligence have the potential to turn fund and alternative data into a powerful resource that is capable of providing meaningful insights into the investor’s decision making process.
This technology does not have the potential to make IROs irrelevant. Rather, the technology requires the investment relations officer’s expertise to transform this intelligence into actionable strategies. It is no more, or less, than a tool in the toolbox.
No one should construe the foregoing as an endorsement of Q4 or its AI Targeting SaaS. It is not. Rather, it is intended only as an example, that hopefully, will motivate IROs, across the industry, to explore the potential of these modern technologies for what they can contribute to the growth of the hedge fund industry.