‘Our Goal Is to Empower Firms’: Edmonton Venture Uncovers New Sources of Edge in Financial Markets
AlphaLayer, an Edmonton-based venture has set its sights on transforming the investment management space with the use of artificial intelligence (AI)-powered technology.
In 2019, AlphaLayer was founded out of a strategic partnership with AltaML, a leading developer of AI-powered solutions and AIMCo, one of Canada’s largest institutional investment managers to discover how state-of-the-art technology could make the firm better.
“In the early days, we had an extremely broad focus, exploring hundreds of use cases,” said Chad Langager, CEO of AlphaLayer. “Over time, we narrowed our focus to where we believe AI and machine learning (ML) will have the largest impact, which is in the firm’s trading and investment research functions. Our goal is to empower firms to leverage this technology to make better capital deployment decisions.”
Ventures are identified as high-growth opportunities. When AlphaLayer was created, both AltaML and AIMCo provided the required people, expertise and resources to set the company up for success. This strong partnership allowed the venture to gain valuable experience delivering various solutions while working closely with investment professionals.
“Working with a large public sector pension fund generated a lot of learnings which they have been able to leverage to build new products to create this investment edge,” said Craig Haney, Head of Ventures at AltaML. “Most startups don’t have a chance to work with a fund that manages $160 billion.”
“This gave us a huge head start in developing a deeper understanding of the problems that our clients care about and how to deliver work that will impress them,” added Josh Mitra, Senior Quantitative Researcher for AlphaLayer.
Leveraging AI and ML
AlphaLayer works with investors looking for unique market signals and trading strategies to help deliver better risk-adjusted returns to clients.
“We develop AI and ML-driven trading strategies across a range of asset classes from equities to fixed income built on core technology,” Langager explained. “This allows us to accelerate the research and development process and increase our odds of finding unique opportunities in the market that can be leveraged by investors deploying capital.”
However, Mitra said one of the most significant advancements currently impacting their work and the finance industry is the “rapid improvements” of natural language processing (NLP).
“NLP has allowed researchers to incorporate large amounts of unstructured text data into their models and find new anomalies and connections in the market.”
But, the real-world application is key.
According to Langager, one of the biggest obstacles firms face when exploring AI is understanding how it can be applied in a commercial setting.
With that in mind, the team uses their deep learning expertise to develop technology that predicts changes in credit ratings for publicly traded companies. Companies that inherently see their credit rating downgraded can see a “significant downward pressure” on their stock price.
“By predicting these events, we can adjust capital away from these firms and reduce the chances of larger losses in portfolio investments,” Langager said.
The team has also developed a model that “looks at a wide range of macroeconomic market features and gives a rating of how close the current economic situation is to a recession to help inform higher-level asset allocation decisions,” Mitra added.
Capitalizing on Cutting-Edge Technologies
The ultimate goal for AlphaLayer? To deliver novel signals that can be used to make more informed and successful investment decisions.
“One example is our work with a hedge fund in New York that has incorporated our models’ security recommendations into their investment decisions for two years now,” Mitra explained.
Showing practical examples of how the team has solved challenges with its technology while delivering a tangible return on investment is the approach Langager has adopted.
“Our mission is to be the best at uncovering investment edge leveraging AI and ML to deliver leading risk-adjusted returns for clients,” he said.
AlphaLayer is now developing a range of new strategies built in-house across various asset classes. According to Langager, this is a culmination of past and present work that’s been developed.
“We are excited to see the results and deliver greater value to our clients and stakeholders.”
On top of that, there’s growth potential for AlphaLayer as the team now has more “creative freedom,” and an even greater shot at attracting some of the most talented ML developers in the country, according to Haney.
“The team can see the effects of the trading strategies almost immediately,” he said. “If there is a great return on a trading strategy, the team can instantly pivot and double down on this signal. Most products and businesses require more time to see the effects, but AlphaLayer gets feedback immediately.”
AlphaLayer is in the business of accelerating the overall understanding of financial markets with AI. But, how do they envision the future landscape for investment decision-making?
“We see ourselves as having a significant amount of capital underneath our strategies with our partners and a core technology that allows us to uncover new signals in the market to develop strategies consistently,” Langager said.
“This will help managers make quicker decisions and challenge prior intuitions or beliefs they may have had,” Mitra added.
“Now is the best time to focus on AI, particularly in the asset management space,” Haney ended.
AlphaLayer develops AI-powered solutions for the investment management industry. These solutions support investment decision-making, accelerate investment management functions and create new sources of investment return.
AltaML is a leading developer of artificial intelligence (AI)-powered solutions. Working with organizations that want to use AI to leverage their data to develop solutions that drive tangible business results, AltaML empowers partners to create operational efficiency, reduce risks and generate new sources of revenue. Through a deep understanding of organizational pain points and challenges, AltaML’s solutions encompass the entire machine learning (ML) life cycle, from evaluating potential use cases and determining feasibility, to piloting solutions, putting code into production and ensuring models evolve over time.
Andrea Dion, Manager, Communications