Algorithms and the Art of Matchmaking
The way we choose what movies to watch and what books to read have been greatly transformed by algorithms. For many, an algorithm significantly aids even whom we date. This science has now finally been applied to the hedge fund space in the form of the AltX platform.
Investors can now assess who they truly are, specifically with what amount of risk they are comfortable while also surfacing compatibility information for investment partnerships.
AltX is the first two-sided financial platform serving both allocators and fund managers, it is the only financial tool that assesses compatibility based on data from both ends of the investment relationship. The result is unprecedented scientific accuracy that takes financial matchmaking to a new level.
In identifying well-aligned partnerships, AltX defines compatibility as the ideal fit between risk preferences, values, or personality styles to achieve desired outcomes. Similar to personal relationships, highly compatible investment partnerships benefit from the ease of compatible communication styles, the efficiency of well-syncing strategies, and the synergy of a shared drive toward similar goals. Most importantly, compatibility between investors and hedge fund managers generates trust — a scarce commodity in an industry known for its lack of transparency.
Of course, defining an ideal partnership involves more than a simple one-to-one correlation of traits between investors and funds. While compatibility in some areas is a basic prerequisite, other traits must be weighted according to relevance and whether the focus is on similarities or diversification. In determining which areas are most relevant, AltX’s behavioral team surveyed more than 4,000 individuals and interviewed more than 400 companies. Their findings: Comparable levels of risk-taking, a shared market philosophy, and similar shifts in risk preference depending on market conditions are seen as the most important aspects of a successful investment relationship.
All of these factors have been analyzed in detail by AltX scientists and incorporated into AltX’s compatibility algorithm. A proprietary mathematical formula, this advanced algorithm is able to compare an investor’s risk tolerance, values, strategy, and market view with the corresponding behavioral information provided by hedge fund managers. The algorithm then calculates the deviation between the two sides’ goals and strategy and ensures that goals are in alignment. From the universe of funds, AltX then surfaces those that offer the highest compatibility, diversified according to personality matching theories.
In addition to analyzing self-reported behavioral information, AltX’s compatibility algorithm also incorporates a unique feature: a proprietary mechanism that translates objective, publicly available information about a fund, such as return patterns or growth of assets over time, into behavioral characteristics. Such inferred data can help define the characteristics of funds that have yet to complete the behavioral assessment, or can be used in tandem with the AltX survey to provide a comprehensive picture of compatibility.
Less immediately evident yet equally valuable is the long-term quality of the investment partnerships vetted by AltX. Because personal bias and cognitive fallacies have been mitigated and values objectively aligned, partnerships forged in the crucible of behavioral science benefit from a shared sense of honesty, safety, ease, and trust. Differences are appreciated, strategies are well synced, communication styles are complementary, and shared goals more successfully achieved. Rooted in the wisdom of self-knowledge, these are partnerships built for the future of investing.
A financial technology company based in San Francisco, AltX provides a two-sided data analytics, monitoring, and matching platform that enables intelligent alternative investments through superior insights. Cloud-based, automated, and unbiased, AltX harnesses science and technology, financial and behavioral dimensions, proprietary algorithms, sophisticated analytics, relationship mapping, and targeted news to predict compatible investment relationships between funds and investors. The result is simpler and more effective discovery, monitoring, stickier capital, and more productive and satisfying investment partnerships.