It’s a new, spicy day in America. Here’s what’s on our plate:
- Financial innovators need to keep close watch over DC’s happenings
- Why the WEF needs to disrupt itself
- The rise of “quantimental” investing
- Predictive analytics, Fabric’s ‘hello world,’ Christa Steele, top financial apps
- Company of Note: BanQu
- Spark: Overfitting your career
On sausage-making and start-ups.
Every four or eight years, a new start-up launches in Washington: the Office of the Presidency. America’s new CEO may be more controversial than previous ones, but to be fair, anyone sitting in the White House will cause controversy while trying to pass new laws and create or eliminate regulations. In a country as big and diverse as the US, the CEO has no choice but to charm, bully, promise, un-promise and deflect, all before breakfast. Otto von Bismarck, a larger-than-life character in his day, understood this component of power and likened the process of getting things done in Prussia to producing sausage: unpleasant to watch, but hopefully tasty in the end.
It’s tough to predict how the new administration will produce its financial innovation sausage; however, if you’re running a fintech start-up or innovation initiative (from regtech to wealthtech to banktech), you won’t have the luxury of waiting around to be served. Like it or not, you’re going to have to carve out the mental space necessary to evaluate your strategic positioning vs. other would-be disruptors in a fluid regulatory/legislative environment. Why not just listen to intelligent sounding prognostications made by the fintech content complex (including us)? That’s easy: since the day our president descended from his golden tower’s escalator to launch his campaign, he has broken the rules, ignored experts and confounded prognosticators. What you think your lawyer, banker or favorite blogger knows is liable to be wrong. So our advice is to keep a close eye on DC’s sausage-making while staying focused on your business. In fact, you may want to begin your homework today, but keep your mustard nearby — just in case an unsavory link comes out of the kitchen.
Davos Man needs to hang with Burning Man.
In recent years, the fabulous and concerned who gather in the Canton of Graubünden (i.e., Davos Man) generally agree that something needs to be done to save globalization. We accept their sincerity. After all, the luminaries from technology, finance and politics in attendance have the most to lose by deglobalization. That’s why, for next year’s gathering, we suggest that the World Economic Forum disrupts itself. One way would be to co-host an event with the Chaos Computer Club, Europe’s largest community of hackers and hosts of the Chaos Communication Congress. The libertarians, cryptography gurus and unshowered developers who attend that event have little in common with Davos Man; they even fly coach. But topics like “Build Your Own NSA,” “Million-Dollar Dissidents and the Rest of Us” and “Liberté, Égalité, Fraternité... and privacy?!” need an airing for globalization’s own good. Davos Man has ushered in unheralded but meaningful benefits for millions of ordinary people, but he can’t hack globalization’s way to a better future from the cabin of a private jet flying over the pitchforks. He needs to get his hands dirty.
“Quantimental” investing is the new black.
On the back of a disappointing year, Point72’s Matthew Granade acknowledged the obvious when he recently asserted that no matter how you slice it, hedge funds are giving investors “Honda returns” at “Rolls Royce prices” (not that there’s anything wrong with a Honda). Still, the future of hedgies isn’t all gloom. Granade, a former co-head of research at Bridgewater Associates, pointed to his firm’s use of so-called “quantimental” investing, which relies on alternative data sources such as credit card usage, as well as fundamental analysis. The approach, which has gained more notice in recent years thanks to University of Chicago academic Lin William Cong, has attracted skeptics who are not sold on the idea of blending strategies. Still, betting against Steve Cohen has been an unwise move in the past. Cohen’s Point72 posted a mere one percent return in 2016, but we wouldn’t be surprised if its voracious use of alternative data helps the fund to produce at least a Lexus in 2017.
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Our prediction: a strong future for predictive analytics. In the last few years, while automated investment advisors have been grabbing headlines, considerably less attention has been paid to innovations surrounding automated research. Now, that’s changing thanks to well-capitalized enterprise start-ups including Kensho, Ayasdi and others. These big data start-ups are creating AI-infused automated analysis for financial institutions, which allows analysts to interpret data to predict future outcomes in real time. As the attached guest opinion asserts, predictive analytics has a lot of room to grow, even within the cozy world of fixed income. In fact, according to Overbond’s Vuk Magdelinic, a refined analysis of the probability of spread-tightening and the likelihood of an issuer coming to market is now achievable.
Life insurance needs new life. Although studies show that millions of American households have little or no life insurance, a disproportionate amount of insurance tech disruption has focused on the P&C and auto segments. We think this is poised to change as millennials move out of their parents’ basements, get hitched and start families. A new entrant seeking to exploit this opportunity is Brooklyn-based Fabric, which just announced a funding round led by Bessemer Venture Partners and partnerships with RGAx and Vantis Life Insurance. Fabric’s founders, Adam Erlebacher and Steven Surgnier, had major roles at Simple ahead of its sale to BBVA, so our guess is that Fabric’s roll-out will be well orchestrated and its app will offer a smooth user experience.
Woman of Steele. There’s no shortage of thoughtful fintech evangelists dotting the financial services landscape these days. But Boardroom Consulting founder Christa Steele is notable for having led and turned around Mechanics Bank before selling it in 2015 at a premium to book value. So when Steele discusses key trends related to SoFi, PayPal, Venmo, Facebook and others, her words carry added weight in our book.
The top of the pops for financial apps. The attached article shows the top 20 financial apps in both the iOS and Google Play stores, according to App Annie. Most of the names on these lists should come as no surprise and several apps are leaders on both lists. To us, the more interesting thing to note was the singles hitters (i.e., apps only on one list). That group includes Citi Mobile and Progressive (on the iOS top list only) and RobinHood and QuickBooks Self-Employed (on the Google Play top list only). Another fun fact: Apple Pay didn’t make the iOS top list.
COMPANY OF NOTE: BanQu.
If you’re suffering from blockchain fatigue, check out BanQu, a software company predicated on the fact that many impoverished and disenfranchised people own or have access to a smartphone or SMS feature phone. Using smart contract technology, BanQu aims to provide these people with a digitally-stored economic identity. Co-founded by CEO Ashish Gadnis, a serial entrepreneur who was raised in Mumbai’s slums, the for-profit Minneapolis-based company is currently piloting its first-mile/last-mile digital identity solution in six countries. Its board and advisors consist of financial services heavyweights including Hamilton USA CEO Seraina Maag and Wall Street Blockchain Alliance chairman Ron Quaranta. We are rooting for BanQu to boom.
CAREER & INSIGHTS
Comings and goings: PayPal has announced that Belinda Johnson, Airbnb’s chief business affairs and legal officer, has been named to its board. Also, high-flying real estate start-up Compass, which is dedicated to reducing the absurdity associated with buying and selling a home, has hired Priceline and BCG veteran Maëlle Gavet as COO. Finally, mega-unicorn Stripe has hired Sarah Heck, President Obama’s global entrepreneurship advisor, to take a senior role within Stripe Atlas.
Spark: Overfitting is a big challenge within quantitative finance, but how about in your work life? Is your internal career model overfitting to explain your professional wins and losses?
QUOTE OF THE WEEK
"Listen, God doesn’t care whether or not you make your next jump shot. God will give you a lot of things in life, but he’s not going to give you your jump shot. Only hard work will do that."
~ Ray Allen, NBA legend and all-time 3-point scoring leader