In March, Modern Trader profiled a number of financial technology firms that are making it easier for investors to obtain information and make actionable trades. In April, we profile AlphaSense, a unique search engine that can make the lives of hedge fund analysts and portfolio managers much easier.
According to International Data Corp., analysts spend 36% of their day peeling though information and consolidating it into more digestible notes.
Launched in 2011, AlphaSense’s platform allows users to dramatically reduce time spent in the research process. The brainchild of CEO Jaakko (Jack) Kokko and his business partner Raj Neevannan, the platform searches more than 1,000 sell-side research providers and combs through information on tens of thousands of public companies. In seconds, investors can sift through broker research, press releases, Securities and Exchange Commission (SEC) filings and other materials. The two founders developed the idea while working on a school project at the University of Pennsylvania.
Kokko says that the research process was time-consuming when he worked as an analyst at Morgan Stanley. “My first job out of college was as an analyst: First in London then in California in the technology field. He found the work incredibly manual and inefficient.
Kokko Says that no automated process really existed before AlphaSense. “The thing that you’d fear most
[in working on] a multi-billion dollar deal — [when you are] working long nights and weekends and crunching a lot of information [while] trying to value something that’s fairly complex — is if you get some data point wrong, it could be worth hundreds of millions of
Prior to the development of the platform, analysts were forced to print out large piles of research and comb through hundreds of documents. Or, analysts had to manually search using the find function on PDFs or in other forms of online secondary research. Kokko says that analysts inevitably would still miss key data despite all the time taken compiling information. Identifying quality research remains a significant challenge for the analyst.
“Even after the hours of work that you need to put in every day to find information, you instinctively knew that you were missing a lot. We were just hoping that was not the critical piece that really flips your analysis around.”
How it works
Kokko offers a scenario where an analyst is seeking information on a retail company and trying locate comments on same store sales.
“By a specific company across their prior SEC filings, their conference call, transcripts or what brokers are saying about it,” he says. Rather than printing out those documents or searching one document at a time, or one keyword at a time, you’re tapping into what’s on your mind and you find all that information instantly. You have this information at your fingertips and you can move onto the next thing. It’s a combination of systematic research as well as Just finding critical information faster. It’s very similar to what you would do on Google as a consumer. But here we focus on financial and business information, and financial concepts, topics and themes.”
Kokko says that the platform has generated a strong following.
“For five years now, we have had more than 500 firms using our product, including two-thirds of the top 50 equity hedge funds,” he says. Other clients are engaged in mutual fund research, private equity and investment management.
Kokko says that the potential market size for its product is much larger, even as it has relied on a word-of-mouth campaign to attract new clients. That potential has also generated investments from former Thomson Reuters CEO Tom Glocer, Tribeca Venture Partners, Triangle Peak Partners and Quantum Strategic Partners, according to Forbes.
Over time, AlphaSense will expand to reach professionals in management consulting, market research, legal services, and more.
“We’re still in the very early days in getting a big portion of those people to adopt the product,” Kokko says. “And then there’s a much broader market in many other verticals similar to financial analysts [that] can also benefit from a product.”