Today, one typically pays investment managers a percentage of assets under management. What if, instead, we pay investment managers for performance? That is the vision of startup Alpha Modus. Alpha Modus has developed new investment tools that leverage cognitive cloud capabilities from IBM Watson to help investment professionals beat the market. The experience of this almost two-year-old company exemplifies how one can rapidly realize business value using the cloud.
Alpha Modus was on stage at the IBM Interconnect 2016 opening keynote. The startup believes that we should pay investment professionals for performance, or alpha. What is alpha? Alpha measures investment performance relative to a market index. An investment with a positive alpha has outperformed the market.
Investment managers seek alpha but, over the past few decades, fewer and fewer have realized it. According to research by Larry Swedroe and Andrew Berkin in their book, “The Incredible Shrinking Alpha”, roughly 20% of active managers generated alpha 20 years ago. Today, however, only 2% achieve statistically significant alpha. Considering those statistics, the investment management industry is ripe for disruption. (more…)