Skip to content
    1. Alternative Managers
    2. Consultants
    3. Corporations
    4. Family Offices
    5. Financial Advisors
    6. Financial Institutions
    7. Individuals & Families
    8. Insurance Companies
    9. Investment Managers
    10. Nonprofits
    11. Pension Funds
    12. Sovereign Entities
    13. View All
  1. Contact us
  2. Search
  3. Client LoginClient Login

Subscribe to Asset Servicing & Fintech Insights

Discover more information in our monthly publication, the AXIS newsletter, including industry trends, product innovation, Fintech and more from our team of experts.

Data Science Levels the Playing Field for Asset Owners in the Battle for Alpha

Before the Moneyball approach came along in professional sports, team managers relied on analyzing past performance to predict outcomes, which does not consider the importance of other behavioral factors or the unexpected curve ball. Much of the same can be said for portfolio management. Until recently, there weren’t behavioral analytics to speak of in the investment management industry. Asset owners and allocators relied on an asset manager’s performance reports and historical return detail in making hiring and firing decisions. And while asset owners have access to large volumes of data, making sense of it has hindered their ability to make informed decisions.

Today, advances in technology have completely changed the game. Technology has propelled behavioral analytics and data science to the forefront of portfolio management, allowing asset owners to leverage data in new ways and prompting deeper engagement with investment managers on their process and performance. No longer are asset owners required to accept past performance as predictive of the future. Now, they can use a manager’s decision-making skill as a basis for allocation decisions.

Through our partnership with Essentia Analytics, we have the opportunity to provide asset owners with better tools to support their stakeholders while driving better returns – whether that be through the initial due diligence phase with their managers or the ongoing oversight. Tools such as the Essentia Behavioral Alpha® Benchmark demonstrate the improvement in data analytics, allowing asset owners to better understand their asset managers’ decision-making processes. The Benchmark methodology is explained in detail in this white paper, which you may download from Essentia’s website.

The adoption of behavioral analytics is evolving at a rapid pace, and it's unavoidable. The accessibility of behavioral data is making it possible for asset owners to gain a far better understanding of how their managers make money. Managers willing to embrace their behavioral data and use the insights provided will prevail, because transparency leads to improvement.

Regardless of which side of the fence you sit on, asset owner or asset manager, leveraging new tools and engaging with behavioral analytics is more important than ever. Teams who choose to ignore this shift could fall victim to it, and those who embrace it may gain a competitive edge in the battle for alpha.

The Moneyball analogy leads to a question: If we’re applying this level of technology and data science to sports, shouldn’t we apply it to the retirement outcomes for hundreds of millions of people?

 

Paul Fahey

Head of Investment Data Science, Asset Servicing, Americas
As Head of Investment Data Science, Paul works with asset managers and allocators to better understand the investment decision process and to improve future decision making. Partnering with expert fintech firms to leverage the power of data, behavioral analytics, investment analytics, and Northern Trust’s peer universe data to drive meaningful improvement to their investment strategy.

© 2023 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit northerntrust.com/disclosures. The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch, Northern Trust Global Investments Limited, Northern Trust Securities LLP and Northern Trust Investor Services Limited, 50 Bank Street, London E14 5NT. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, incorporated with limited liability in Luxembourg at the RCS under number B232281; authorised by the ECB and subject to the prudential supervision of the ECB and the CSSF; Northern Trust Global Services SE UK Branch, UK establishment number BR023423 and UK office at 50 Bank Street, London E14 5NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden, registered with the Swedish Companies Registration Office (Sw. Bolagsverket) with registration number 516405-3786 and the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) with institution number 11654; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA #160018; Northern Trust Global Services SE Norway Branch, org. no. 925 952 567 (Foretaksregisteret) [VAT if applicable], address Third Floor, Haakon VIIs gate 6 0161 Oslo, is a Norwegian branch of Northern Trust Global Services SE supervised by Finanstilsynet. Northern Trust Global Services SE Leudelange, Luxembourg, Zweigniederlassung Basel is a branch of Northern Trust Global Services SE. The Branch has its registered office at Grosspeter Tower, Grosspeteranlage 29, 4052 Basel, Switzerland, and is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License #12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) are licensed by the Guernsey Financial Services Commission. Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA. Northern Trust International Fund Administration Services (Ireland) Limited (160579)/Northern Trust Fiduciary Services (Ireland) Limited (161386),  Registered Office: Georges Court, 54-62 Townsend Street, Dublin 2, D02 R156, Ireland.