To highlight how our clients work with Inalytics, we’ve asked a few of them to outline how our decision-level analysis enabled them to better assess investment skill, adjust their processes and ultimately improve outcomes.
As a portfolio manager responsible for the selection of equity managers for an endowment fund, I was constantly looking for ways to innovate and improve the investment process. Effective due diligence was naturally key to our process prior to manager selection and investment, but I wanted to move beyond the traditional performance, factor and qualitative assessment in favour of a more thorough and rigorous approach, to drive our process forward as a team.
Inalytics offered a different perspective on traditional performance analysis, analysing decisions not exposures over time, and created a direct link to the underlying investment process. By directly connecting our analysis of a portfolio to the investment process, we were able to see the effectiveness of different aspects and identify areas of strength and weakness, as well as common trends amongst the underlying managers. We were also able to see some of our own behavioural biases, some surprising some not so surprising, when selecting and monitoring managers.
As a team, we were able to actively use this analysis in our due diligence process by questioning managers on the consistency of decisions made in the investment process and the underlying drivers of trading patterns in portfolio positions. This review and due diligence process was more thorough and yielded greater accountability between manager and client, since with access to advanced data analytics, we were not prisoner to taking the manager’s responses at face value; we could evidence the decision and outcome using Inalytics’ online platform.
This aspect became very useful when I was reviewing a portfolio manager change in an invested strategy. The manager had historically been very successful at timing and generating alpha with a momentum buying style. However, it quickly became apparent that the new portfolio manager had changed strategy and became much more contrarian in their buying despite reassurances that nothing had changed. This reduced our confidence in the manager’s ability to continue to generate alpha and a replacement strategy was sought for the fund. This ultimately proved beneficial to performance as the divested strategy continued to underperform.
Using Inalytics, our ability to identify trends and decision-making patterns in the underlying portfolios did not go unnoticed: some of the underlying portfolio managers eventually became clients of Inalytics to take advantage of the data analytics and improve their investment process.
Using Inalytics improved our due diligence by adding the rigour of data analytics to our due diligence and oversight process. I was able to see trends in decision making that would have previously gone unnoticed and our team was able to use the online platform to put a manager’s decision making under a microscope. Though we were happy with our previous data providers, we recognised the need to improve, ask differentiated questions and identify persistent investment skill. Inalytics helped us achieve these objectives and their systems are now a core part of our reporting, both to the internal investment team and to our trustees to help them to maintain confidence in our process and to evidence thorough due diligence.