Alt-X analyses behavioural traits and risk tolerances of both investors and funds to find a match
The team at start-up Alt-X think that deeper social and behavioural insights will change the game for the full spectrum of fund investors. It evaluates behavioural traits and risk tolerances to match hedge funds with investors. It can also be used by hedge funds to evaluate teams and for advisers to assess clients' general risk aversion. The platform analyses 5,000 hedge funds and captures an array of data on investors, including divorce records, golf handicaps and political donations. It is attracting interest from sovereign wealth funds, pension funds and large hedge fund investors and has some serious backers. Telco billionaire Carlos Slim legendary activist investor Jeff Ubben and TPG founder David Bonderman are all investors in the firm.

"One of the things that stands out is that it is unbelievable is how many billions trade hands every year via a digital abacus – Excel," Attwell says.

Deeper social, behavioural insights

Attwell and the team at Alt-X believe the deeper social and behavioural insights will change the game for fund investors, ranging from the monolithic sovereign wealth funds to suburban planners.

Alt-X has already attracted interest from sovereign wealth funds, pension plans and other large hedge fund investors. It has some serious backers that include the fiercest corporate minds on the planet.

Billionaire Carlos Slim, legendary activist investor Jeff Ubben of ValueAct and TPG founder David Bonderman are all investors in the business, which was co-founded by Sam Hocking, the former head of prime broking at Bank of America Merrill Lynch and BNP Paribas.

Central to Alt-X is its function of matching hedge funds with investors by evaluating behavioural traits and risk tolerances of both parties. It's the self-proclaimed match.com of the investment industry.

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"This is the real power we are finding in combining behavioural and social data and watching the relationships," says Alt-X's Nick James, who oversees corporate development and principle investments.

This is achieved by harnessing behavioural science to determine compatibility by using a questionnaire developed by psychometric analysts. The "implicit association test" determines how investors and managers perceive risk compared with how they think they perceive risk.

Terrifying prospect for middle man

James says the function can be applied not only in assessing suitable funds, but can be used by hedge funds to evaluate teams and for advisers to assess their clients' general risk aversion.

This all sounds like a terrifying prospect for the middle man. But Alt-X believes its mission is to use technology so that the human adviser is once again in the hot seat.

James, a Sydneysider who worked at Bank of America Merrill Lynch and fund manager 8iP, compares it to chess master Garry Kasparov's epiphany. After being beaten by the Deep Blue computer, he emerged from a reclusive period after determining that a combination of computing power and human insight will drive mankind's progress.

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"We are thinking about an engine using data science to empower advisers to fight back against robo advisers," James says.

"Relationships will continue to matter – and as you move up the wealth food chain, to discuss something complex you need a person as a trusted adviser. And there's no question that the people that have the relationships will need the computing power."

Relationships matter for more reasons than one in the world of hedge funds.

One of the most impressive features of Alt-X is the social map of the hedge fund universe, which shows the personal interconnections of managers and traders – which may be through business connections, charitable foundations or lobby groups.

Hedge funds swim in same fishbowls

The maps give insights into what many have suspected – that hedge funds have a tendency to swim in the same fishbowls and are prone to "groupthink" and crowded trades.

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For instance, the board of the Robin Hood charitable foundation boasts Bill Ackman, Steve Cohen and David Einhorn, three large managers that control billions of capital. They may claim otherwise, but there's every chance their trade ideas could be cross-contaminated.

"What we're doing is create deeper insights much earlier and we're showing connectedness you are not aware of," James says.

The ambitions of Alt-X extend beyond hedge funds and even the investment community. It aims to socially map executives of the S & P 500 and Russell 2000 companies and even Australian firms so that investors can easily understand the interconnectedness of their dealings.

For now, it is an indispensable tool for hedge fund investors and is gaining traction among investors around the world including in Australia. James has big plans for the product's use in his country of origin.

"Where I think it's perfect is in the financial adviser sector, to service retail investors who are using DIY super and are looking for technology to improve [their] decision making process."