Inalytics, which uses data to analyse decision making in the investment process, has hired Shane Sutton, technical director of British cycling, to devise strategies for fund managers to improve performance.

Rick Di Mascio, chief executive of Inalytics, told Markets Media: “As a portfolio manager and as a chief investment manager running teams of portfolio managers it was assumed that we had skill but because there were no objective measures for it, we were left guessing at how to improve our process. Now 20 years later at Inalytics we analyse every single decision taken by a fund manager to pinpoint how decisions and behaviours drive returns and they use the analytics to improve their game in the same way sports people do.”

Prior to setting up Inalytics, Di Mascio had twenty years’ experience in pensions and fund management including as chief executive and chief investment officer of British Coal’s pension schemes. His career also includes roles as head of UK business for Goldman Sachs Asset Management, director of a European hedge fund and executive director of IMIGest, managing 20% of the Italian savings market. He has recently been appointed as a special advisor to the UK’s largest in-house investment team at the Universities Superannuation Scheme Ltd.

This month four UK public pension funds, including Cumbria and Warwickshire county councils, hired Inalytics to provide data analysis and monitoring of fund managers. In February consultancy Towers Watson included Inalytics’s analysis as part of its due diligence for researching equity managers and identifying the best performers.

Inalytics uses data to identify every decision taken by a fund manager to see if they can identify winners and can compare their performance against Inalytics’ database of 1,000 portfolios to see if they are more skilful than peers.

“Our database establishes that real skill and talent exists in the fund management industry and mangers have the ability to find winners,” added Di Mascio. “However they often give up on winners too early as they want to bank a profit and run losing positions too long. This can make a difference of between 100 and 200 basis points in performance.”

Di Mascio said that five years ago asset managers were resistant to analysing investment strengths and weaknesses but the idea has gained popularity.

“Michael Lewis’ Moneyball and the performance of the British cycling team has have shown the benefit of performance analysis,” he said.

In “Moneyball: The Art of Winning an Unfair Game”, bestselling author Michael Lewis tells the story of baseball team Oakland A, who outperformed richer teams after becoming the first team to recruit statistics experts to their scouting staff. Lewis wrote: “People in both fields operate with beliefs and biases. To the extent you can eliminate both and replace them with data, you gain a clear advantage.”

At the 2012 London Olympics, Great Britain won seven out of 10 track cycling gold medals, the same as at the Beijing Olympics in 2008.

On the final morning of the track cycling competition in London, Dave Brailsford, British Cycling’s performance director, told the BBC that the team depended on making many marginal gains in performance.

Brailsford said: “The whole principle came from the idea that if you broke down everything you could think of that goes into riding a bike, and then improved it by 1%, you will get a significant increase when you put them all together. There’s fitness and conditioning, of course, but there are other things that might seem on the periphery, like sleeping in the right position, having the same pillow when you are away and training in different places.They’re tiny things but if you clump them together it makes a big difference.”

Six months ago Inalytics began working with Sutton who was previously head coach at British cycling and Team Sky. After looking at the data from Inalytics’ software, Sutton and his team provide bespoke coaching strategies to improve decision making during the investment process.

Sutton said in a statement: “There is no great secret to the methods I use with my athletes and coaches. It’s about the aggregation of marginal gains based on evidence and challenging that evidence to improve performance and decision making.”

“Our clients have seen a significant change in behaviour and put processes in place to ensure they sell winners for the right reasons,” said Di Mascio.

Inalytics is now looking to expand from analysis of equities funds into credit according to Di Mascio.

Featured image via Wikimedia Commons