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DATA DRIVEN INVESTMENT DECISIONS

Keith Bortoluzzi, CEO, Thread

 

According to The Economist in 2017, ‘the world’s most valuable resource is no longer oil, but data’.

Like oil, data can be extracted from diverse sources. Like oil, data then needs to be stored and refined in data centres. Eventually, both serve as feedstocks for the economy. Many sectors depend on oil by-products from the kerosene that fuels airplanes to the fertilizers that nourish our soil or the soap that we use to wash our hands. Similarly, data drives services from social networks and digital marketplaces to connected devices.

Similarly, in much the same way that the discovery of oil at the end of the 19th century led to the development of new machines, boosted growth, and increased the living standards of many, data is already reshaping our society in 2020. Increasing interconnectedness as well as giving us a deeper understanding of human behaviours and needs, data transforms business models, changes the way we interact, and powers more accurate services.

Of particular interest to us is the fundamental link that ties data with decision-making, particularly for finance professionals. Unlike oil, which has an intrinsic energy content and can, therefore, be used in its raw state, data is an intangible asset with no practical use in the physical world unless it is refined or contextualized.

If you use the right tools to interpret data points, you will get a shape or a curve. From this shape, you will derive information, that is, a new understanding of the physical world. Based on this newfound insight, we can make decisions which in turn will shape the real world. That’s why we believe that having the right tools to structure and analyse data is as important as having access to data itself.

 

The investment data funnel

We can understand a typical investor workflow in three stages, otherwise known as an investment data funnel. Much like in the oil and gas industry, this funnel is categorised into Upstream (collecting data), Midstream (deriving actionable insights from data), and Downstream (turning insights into decisions). The challenge for investors today is to make sense of the overload of information that they are exposed to on a daily basis.

Over the last decade, financial analysts downsized the average number of companies under their coverage by roughly 25%, according to StarMine numbers. Over the same period, analysts’ job postings dropped only by around 18%. These numbers underscore how investors prefer to focus their limited resources on deeper analyses and due diligences. But what if instead of investing in more upstream — data collection — and midstream — data analysis, investment firms were able to put more time into the downstream section of the investment data funnel?

When working with partner asset management firms, we have seen how investing in downstream processes, namely collaboration and communication, yields valuable benefits. However, to be truly productive in today’s interconnected but physically-remote world, Asset Managers need a new approach to digital collaboration. Next-generation technology which enables them to share and discuss ideas, as well as retain learnings for the good of the whole team and wider business.

 

Next-generation productivity tools for Asset Managers

Even in today’s digital environment, Asset Managers derive their best and most original investment ideas from the collective knowledge of specialists within their organization, such as industry experts, bonds, or equity analysts. Cross-industry expertise and collaboration are often required to crack the most complex investment opportunities – but this is difficult to achieve when we are all working remotely.

Traditionally, investment teams have operated in silos, relying on different files, tools, and methodologies to source, build or update investment theses. The ability to share information and collaborate on ideas has often been based on the back-and-forth, informal communication between team members.

First-generation tools like Excel, Word, and email clearly help individuals be more productive individually, but it’s easy to see how information can get lost and distorted. Similarly, how do you ensure decisions involve all the relevant stakeholders and ideas are discussed openly and transparently when there are many different email threads and offline conversations in the mix?

When we think about next-generation productivity tools for the investment community, it’s all about collaboration and a shared digital workspace where all relevant information and people are gathered in one place to create, discuss, and challenge investment ideas.

This should include features such as real-time editing and commenting on investment notes, a centralized and shared views build so that teams can tap into a ‘single source of truth’, access to company restatements and estimates made by your colleagues, and the ability to edit estimates directly within a shared table which removes the hassle of copying and sharing Excel sheets with teams as a way to share knowledge. It is very common to see separate teams reviewing the same information several times instead of capitalizing on each other’s work because they don’t have the right tools to collaborate and properly split their workflow.

It’s time to redefine the way Asset Managers work, share and collaborate. While innovation usually takes iterative steps towards a final revolutionary product that changes the world, the current crisis, where investment teams have been forced to work remotely, has provided as a unique opportunity to break down silos and make the big leap into collaborative, next-generation investment technology.

 

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Business

THE SPAC BOOM: WHY COMPANIES AND INVESTORS ARE INCREASINGLY LOOKING TOWARDS SPAC IPOs

Maxim Manturov, Head of Investment Research at Freedom Finance Europe

Special purpose acquisition companies (SPACs) have long been part of the investment landscape, but this market has boomed in recent years. As well-known underwriters and investors show increased interest in the initial publication offerings (IPOs) of blank-check companies, SPACs have been pushed to the forefront of the agenda and there is even discussion around whether these will outpace the traditional IPO. Essentially, SPACs have become a very viable alternative for many private companies.

The SPAC boom is best exemplified by recent research from Refinitiv, which found that

SPACs have raised $79.4bn globally since the start of the year, eclipsing the $79.3bn that flooded into investment vehicles in 2020.[1] In fact, some studies report that SPACs accounted for a record 30% of all industry IPO earnings in 2020 and is already accounting for 54% in 2021, up from 1% in 2014.[2] The SPAC frenzy that commenced in 2020 therefore shows no signs of slowing, with 2021 set to be a record year for SPAC listings.

In light of this, with a long list of SPACs having filed for an IPO in 2021, it is imperative for companies and investors with growing appetites for participation to take a closer look before coming to a decision. So, let’s dive deeper into the rising popularity of SPAC transactions, the traditional IPO vs. the SPAC IPO and the future outlook for the thriving market.

The rising popularity of SPAC transactions

SPACs are non-commercial companies created solely to raise capital through an IPO in order to acquire an existing private company, thus bringing that company to the market. While SPACs have been around for quite some time –entering the investment landscape back in the 1990s– it is only recently they have exploded in popularity, as better-known underwriters and investors started taking part in them. This trend will likely grow as major private equity firms and venture funds continue to form more SPACs.

The reasons behind the rising popularity of SPAC transactions include low interest rates, simplified listing requirements, increased investor participation and the quantitative easing policies that are still adopted by most central banks. SPACs are also a great way to get exchange-listed during increased market volatility, as well as enable existing companies to gain access to liquidity that would not otherwise be available.

Ultimately, there are a range of factors that make SPACs a more sustainable option for raising funds, hence why target companies are increasingly looking towards SPAC IPOs to take them public. These factors, combined with the increasing number of high-profile sponsors entering the SPAC space, have enabled this market to soar. But will SPAC IPOs really outpace traditional IPOs this year?

The traditional IPO vs. the SPAC IPO

Traditional IPOs and SPAC IPOs are both subject to the same set of rules when taking a company public. When delving deeper into the benefits of these investment vehicles, however, there are notable differences. Compared to a traditional IPO, SPAC IPOs offer more certainty regarding the company value and fundraising, since the valuation is fixed through a privately concluded merger.

Alongside this, raising funds through SPAC transactions is one of the quickest ways for private companies who are in urgent need of capital. Getting ready for a regular IPO requires time, from a few months to a year, whereas creating a SPAC can be completed in just three short weeks. The benefits of this pace have been recognised none more so than amongst the ongoing pandemic, hence why investments in SPACs continue to surge.

One potential shortfall to point out, though, is the ability of SPAC IPOs to acquire a private company in the allotted timeframe. Once a blank-check company lists its security information on an exchange, it must complete a merger within three years or risks falling through, which creates added risk for buyers looking to invest.

In a nutshell, while SPAC IPOs can provide greater flexibility, efficiency and speed for target companies, they cannot wholly replace the reliability of traditional IPOs. Companies looking to go public must therefore weigh up the pros and cons of each option in line with their individual goals and capabilities.

The future of the SPAC market

That being said, many experts still believe that SPACs’ popularity will continue to grow in coming years as companies look to raise capital quickly and investors look to actively participate in this craze. This is demonstrated by initial stock market listings in 2021, which witnessed one of the best starts to the year since 2008, thereby highlighting that active participation in SPACs is undoubtedly growing. On top of this, with low interest rates and savings on commuting, food and coffee costs, COVID-19 has triggered an increased interest in investing amongst younger buyers.

But with so many SPAC options on the table, which ones are actually worth investing in?

  • Stable Road Acquisition Corp – Expected to merger with Momentus. Momentus is a pioneer in space transportation and infrastructure technology and is at the forefront of space commercialisation. With an experienced team of aerospace, propulsion, and robotics engineers, Momentus developed a cost-effective and energy-efficient space transportation system based on a water-plasma propulsion technology.
  • Social Capital Hedosophia Holdings Corp. V – Expected to merger with SoFi, a leading next gen financial service platform. SoFi’s mission is to help people achieve financial independence by taking correct money management decisions. This is a one-stop member-focused financial service hub that includes loan refinancing, mortgages, personal loans, credit cards, insurance, and investment and deposit accounts, with over 1.8 million users.
  • Property Solutions Acquisition Corp – Expected to merger with Faraday Future.  Faraday Future is a global smart mobile ecosystem company, the mission of which is to change the aspects of digital life when it comes to cars. The company already has a powerful portfolio of revolutionary value-added technologies, protected by nearly 900 patents worldwide.

The future for SPAC transactions is therefore likely to be bright as private companies increasingly look towards SPAC IPOs as a viable option to go public. With a growing number of players entering the SPAC space, the SPAC frenzy is only gathering pace.


[1] https://www.ft.com/content/321400c1-9c4d-40ac-b464-3a64c1c4ca80

[2] https://seekingalpha.com/news/3656255-piper-sandler-spacs-look-bubble-like-but-may-boost-goldman-sachs-and-evercore

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Business

HOW NEW DATA SOURCES CAN ACCELERATE OUR JOURNEY TO RECOVERY

Jonathan Westley, Chief Data Officer, at Experian UK&I

With the growth of e-commerce and streaming of everything from music to films, online subscription services have become increasingly popular. According to research published by Barclaycard, Britain has become a nation of super-subscribers – spending over £550 a year on new digital services and signing up to an average of seven services per household.

Although interesting to see, these numbers aren’t surprising. There’s no doubt that we are spending more and more of our time online. The Covid-19 pandemic has only served to accelerate the digital disruption we’ve seen across all sectors in recent years.

What’s less obvious is the impact that this behavioural change is having on the provision of financial services. There is a big opportunity to utilise the financial information created through the payment of subscriptions and other digital services to help lenders to understand affordability in a more robust and intuitive way. One which is more appropriate for the digital age.

By building out financial track records with these new sources of information, lenders are able to understand credit risk in a way that is fit for purpose in a rapidly changing marketplace. For the individual, this has the potential to help them access better deals on credit, even when there’s a lack of traditional information to strengthen their credit history.

Challenges to greater data sharing

While the above provides a compelling case for greater data sharing between consumers and financial services organisations, we know there are several entrenched challenges to this.  

Firstly, people will only share information if they fully understand the terms of the exchange and place a high enough value on the product or service they receive in return. This value must also outweigh any risk they perceive in sharing. This delicate balance is known as the ‘consent equation’.

While sharing information on their subscription payments could present real value for consumers, enabling them to access more affordable credit, these benefits need to be communicated clearly. Organisations also need to face the risks that people may perceive in how their data is used, shared or stored, and address these through communications. 

Process or user experience can be another significant barrier to data sharing. While robust security protocols are paramount, organisations do need to consider the journey people must complete to share their information. Make this too arduous, and people will drop out part way down the road. 

Taking the first steps towards the future

While substantial, these challenges are not insurmountable – and the potential benefits to consumers and lenders make overcoming them well worth the effort.

We aim to lead progress in this area with the launch of Experian Boost. The free service uses Open Banking technology to allow consumers to factor information on regular payments, such as their council tax or Spotify subscriptions, into their credit scores. Any information submitted is only used to this end, and to improve rather than negatively impact users’ scores.

In the current context, this information could be vital. While the furlough scheme and its extension over the summer will continue to cushion the financial blow of the pandemic for many, lenders may still see an uplift in the number of people requiring some form of support.

Against this challenging backdrop, there’s even more of a need to make a sound assessment of vulnerability and affordability, which requires a full understanding of a customer’s current circumstances and financial exposure, and therefore the breadth of their indebtedness across all credit commitments.

New data sources created through digital subscription services, as well as those available through Open Banking data sharing, can be harnessed to help develop better credit options for consumers. Experian Boost is evidence of this. The next step of this journey is helping more people to add their own consumer contributed data directly to their credit files and improve their credit scores. By embracing the use of these new and relevant sources of information, made possible through the proliferation of digital services, lenders will be in the best possible position to adapt to the changing consumer landscape and accelerate down the road to recovery.

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