Innovation awards: Coalface Capital does ‘a Kevin Costner’ with big-data analytics

If you build it, investors will come. Coalface Capital chief executive Declan McEvoy says his company have to do "a bit of a Kevin Costner" to realise its vision for market trading but once constructed, the system should be a beacon for independent traders.

Aiming to attract thousands of them through the lure of “big-data” analytics, the baseball analogy is not entirely out of place – this business model depends on team play, the more players the better.

At its simplest, Coalface Capital’s innovation is to act as an aggregator of independent trading results. It wants to hone in on the trends through analytics and reward everyone with the outcomes – traders, management companies and investors all get a slice of the pie.

Originating at NovaUCD, the company has begun incentivising traders to supply their performance data which it is using to build a corresponding leader-board based on results.

Traders are paid fees based on their level of activity and their ranking, and on the resultant performance of investments based on their trades. They will also benefit from data-based feedback supplied by Coalface.

Eventually, the company will begin to target clients whose investments will be based on that data. Their money will have the security of an established passive fund management company which will act as a kind of underwriter.

Greater return

A percentage of high risk-adjusted returns will go to both Coalface Capital and the supporting fund but, and this is key, it will be considerably less than traditional fees allowing for a greater percentage return.

The idea is based on a Freakanomics theory – if you construct incentive systems the right way you can get very strong outcomes.

McEvoy explains the model as appealing to potential investors who might not otherwise have “the kind of stomach” for risky, high return investments it intends to identify through big data analysis.

He uses the financial crisis as an example of market timing – when equity markets began their headlong plunge on the S&P 500 in 2007, falling from a high of 1576, through the dizzying spells of Lehman Brothers and global meltdown, to an eerie low of 666 in March, 2009.

“The point is that when it got down to 666, everybody who had invested in stocks hadn’t got the capacity to invest in any more and it would be a rare person who had the cash [to invest] and got it spot on.”

Leaders

In a sometimes dubious world of “sure thing” investments, Coalface Capital is trading not only on hard data number-crunching but on the pedigree of its leaders.

McEvoy, a London Business School graduate, has 28 years experience in trading and sales at investment banks and has held management positions at Citigroup and Standard Chartered.

Chief technical officer Antonio De Negri previously worked at Citigroup and Barclays Capital on various high- yield and structuring desks.

Technology director Kevin Malone, a programmer and software developer by profession, has developed several projects at Cap Gemini, GE, Leaseplan and Willis, and manages all of their applications.

“Credibility is huge, our own CVs. We all work in investment banks so that always helps. It’s about building a product and giving a return to traders. Hopefully that gets you a bit of word of mouth.”

Coalface Capital estimates it will need a minimum of 2,000 traders to confidently run its system. Currently in its infancy, it has registered 100 to date and aims to scale this to 1,000 by the end of the year and to 10,000 by 2017. Projected annual profits by 2018 are €4 million a year.

Crucially, they are looking for a broad range of traders – different people, trading in different areas at different times – to help diversify the database and identify numerous investment avenues.

– MARK HILLIARD