Buy-Side Technology Awards 2014: Winners' Circle—Essentia Analytics

Last time we chatted you were at Tisbury Capital. What have you been up to since then?
Clare Flynn Levy, Essentia: I’ve been in financial services the whole time—I just haven’t been dedicated to software. We sold Beauchamp Financial to Linedata at the end of 2005, and I was there until the spring of 2007. From there I went to Tisbury Capital until the end of 2008, when I left to start a family. For the next two years I consulted to hedge funds and sat on boards, and then went back into technology full-time at the start of 2013 when I founded Essentia.

What were the major changes you noticed in the industry from the time you were at Beauchamp until the start of 2013?
Levy: There have been so many. The industry is starting to embrace the cloud, which makes it easier to provide continuously improving software that is available anytime, anywhere. The availability of cloud-based tools also now makes it much easier to start software companies than ever before. Obviously social media is also a big change, and while our client base is not particularly into social media, the financial technology community is. That has allowed us to gather a certain amount of awareness, and to collaborate with like-minded people around the world.

What about the buy side itself? Have you noticed any major changes to the way buy-side firms manage their clients’ money?
Levy: In some ways the industry hasn’t changed at all over the last 20 years. I’m frequently amazed at how antiquated some of their processes are—especially when it comes to capturing and tracking the efficacy of the investment process. Hedge funds tend to be more proactive, technologically, but even they often struggle to prove how they add consistent value as investors. It’s nice to see that the buy side has generally embraced the “buy” versus “build” approach to technology. But in general, what’s really changed is the intensity of investor scrutiny, regulation, and the flow of assets into passive vehicles.

What was the premise behind setting up Essentia Analytics?
Levy: Essentia is the software I wish I had when I was a fund manager. Fund managers, like everyone else, have limited time and limited physical, psychological, and intellectual energy. They have to deal with an unlimited amount of information constantly bombarding them. Figuring out how to maximize your return on energy expended in that scenario is really difficult, and yet that is the logical answer. Very few fund managers are in a position to prove their investment skill outside of quoting performance data and exposures, then working backward from there.

How does Essentia differ from any of the decision-support tools already on the market? What do you bring to the table that’s new?
Levy: To date, decision-support tools in general have been focused on making decisions based on what other people in the market are doing. Essentia focuses on the trader or portfolio manager’s own behavior—after all, the one person whose behavior you can control is your own. Not paying attention to it does not make sense, particularly in light of what we’re learning about human cognitive bias. What Essentia does is make it simple to track and reflect upon your own investment process. Based on that knowledge, Essentia can help users play to their strengths and avoid making the investment mistakes to which we’re all prone as human beings.

What’s in the pipeline for the immediate future?
Levy: We’re highly agile and we’re moving quickly. In the immediate future, we are coming out with new visualizations that make it easier for a fund manager or chief investment officer to tell exactly what has been working and what hasn’t, and to demonstrate the investment process to investors. We’re working on making it easier to get data into the system, including a project with a popular wearable technology provider, and next year we’ll be working on a project focused on fixed-income managers.