Essentia Analytics Measures PM Performance Against Peers With New Tool

Essentia Analytics, which provides behavioral data analytics and consulting for investment firms, is enhancing its Insight Enterprise platform to allow internal peer portfolio managers to benchmark against one another. 

Clare Flynn Levy, founder and CEO of Essentia, says the enhancement, Multi-Portfolio Views, is currently in beta testing and expects the feature to launch on the Insight Enterprise platform in the fourth quarter of 2020. 

Multi-Portfolio Views allows chief investment officers and heads of equities trading to have a clearer picture of their portfolio managers’ strengths and weaknesses, which would allow them to potentially structure their teams more efficiently. 

Levy tells WatersTechnology that the capability will allow higher-ups to determine which managers on their team are best at, for example, enter-timing and exit-timing, and which need improvement. 

“There are so many different things that they may or may not be good at. What we can do is load all that [data] up and make it possible for you to compare managers within your own organization and better understand the differences. It’s not so much to say ‘This manager is good,’ or ‘This manager is bad,’ but more of, ‘This manager makes their money out of good stock-picking and really good sizing decisions,’ or ‘This manager is great at timing in a momentum market.’ Knowing this kind of stuff makes it easier to manage the team, potentially,” she says. 

The resulting analyses aim to provide a better understanding of how investment teams add and destroy value, while allowing the team members to play to their strengths, avoid their weaknesses, and track improvement. 

“It’s also really helpful for being able to explain to the outside world why you’re skilled and why your fund managers deserve to be paid fees that are higher than a passive fund. ‘What is it that we’re doing that’s better than an index fund?’ We can show that in a lot of detail, and they can craft a narrative around that,” she says.

Next year, Essentia plans to add external peer benchmarking that will show how a given manager’s skill compares with other external managers with similar strategies. 

“We just need to bring in the external portfolio data. So the technology is already in place, but we’re mostly entirely focused on our own clients and analyzing their data, rather than the data of people that are not our clients. But it’s a matter of teaming up with somebody who already has lots of that data,” she says.

Levy says no additional development work will be needed to enable this function.  

Earlier in August, the company launched Insight Enterprise, an enterprise data and behavioral analytics solution catered to teams of active equity portfolio managers to help evaluate performance and increase alpha generation in their portfolio. 

The enterprise platform builds on Essentia’s flagship product, Insight, which was launched in 2013 and delivers analytics that identify strengths and weaknesses in the investment process by providing traders with individualized ‘nudges’ to improve their decision-making process.