Essentia Analytics, which provides behavioral data analytics and guidance to identify and correct thinking biases that impact investment performance, plans to grow its workforce and accelerate research and development following an investment of Northern Trust.
Clare Flynn Levy, founder and managing director of Essentia Analytics, told Markets Media that she was asked by Northern Trust to speak at a conference two years ago and the relationship eventually led to the purchase of a small stake by Northern Trust.
“They were clearly interested in this space and value-added ways to leverage the data they hold for customers,” she added.
We are delighted to announce that @NorthernTrust (Nasdaq: NTRS) makes strategic investment in Essentia Analytics. Details: https://t.co/Y1GDSgpI98
— Essentia Analytics (@Essentia_AI) September 21, 2021
Northern Trust said in a statement that it is adding Essentia’s behavioral analytics solutions to its Whole Office strategy which makes it easier for clients to access new technologies, services and solutions throughout the investment lifecycle.
Pete Cherecwich, President of Corporate and Institutional Services at Northern Trust, said in a statement: “Essentia’s next-generation data analytics technology enables institutional investors – both asset managers and allocators assets – integrate data-driven insights into their investment process. Through our Whole Office partnerships, Northern Trust clients around the world can access industry-leading technology, skills and services designed to help them make repeatable and measurable decisions in their quest for alpha.
Flynn Levy said the capital from Northern Trust will enable Essentia to accelerate planned research and development initiatives, scale the platform and facilitate the onboarding of new customers.
“We’re all about continuous improvement, and it’s about being able to continually improve,” she added.
Flynn Levy founded Essentia Analytics in 2013 after spending a decade as a fund manager. Her previous experience included managing over $1 billion in pension funds for Deutsche Asset Management and as founder and managing director of Avocet Capital Management, a technology-focused hedge fund manager.
Essentia analyzes data to create behavioral “nudges” that interact with portfolio managers at or near the time they make investment decisions. For example, the data may show that a fund manager has a habit of holding an underperforming stock for a period of time and will send a boost if it approaches that period again.
Nudges can be time-based where the money manager can choose when and how often they are received – for example, a Brain Nudge has a blank box to prompt a manager to keep a diary. The second type of nudges are automatically triggered by events such as a change in a stock price and allow managers to set the entry or exit level of a given position.
Essentia said that since its launch, its customers have improved their performance after twelve months by an average of 150 basis points of incremental alpha per year.
“The nudge concept only works if people respond, so we need to make that as simple and transparent as possible, and that will be an important area of investment,” Flynn Levy added.
See how Essentia’s behavioral analysis, personalized advice and expert coaching helped a focused, low-turnover fund manager unlock over 4% more alpha per year, here: https://t .co/4993HT95tP
— Essentia Analytics (@Essentia_AI) September 7, 2021
Northern Trust will also promote Essentia’s products to its fund manager and asset allocation clientele. Flynn Levy added that over the three years, she would expect Essentia to double in size in terms of headcount, have been involved in numerous product developments and gained new customers globally.
“The beauty of this partnership with Northern Trust is that they had the same vision for us that we have for ourselves,” she said. “Our goal is to become an industry standard and now we have a real chance of achieving it.”