HAL 9000 Comes To Investment Research

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In 2001: A Space Odyssey, a sentient computer stars as one of the scariest screen villains of all time eventually forcing the crew of the Discovery One spacecraft to shut down the computer.  However, last week, Kensho, a tech start-up received funding from several VCs to build the research industries’ own version of HAL called Warren, capable of answering millions questions about the impact of global events on asset prices.

Start-up Receives Funding

Last week, Kensho, a Cambridge Massachusetts based start-up secured $10 million in seed funding from General Catalyst, NEA, Accel Partners, Google Ventures, Devonshire Investors (the private equity arm of Fidelity Investments), and several other VCs.

The purpose of this investment was to fund Kensho’s development of “Warren”, a cloud-based virtual market research assistant currently capable of answering one million distinct natural language questions about the impact of global events on asset prices.  The firm expects that Warren will be capable of answering 10 million complex financial questions by the end of 2014.

Warren has been built by software engineers from Google and Apple, including one of the original engineers on the first iPhone team.  Warren has been in beta test with a few hundred analysts at a select group of asset managers for the past four months.

Revolution in Investment Research

Kensho designed Warren to shorten the traditional buy-side investment research cycle from a few hours or even days to minutes.

Daniel Nadler, the CEO of Kensho explained the development of Warren, “Kensho is dedicated to the idea that communicating in natural language with intelligent computer systems which serve as virtual personal assistants will form the leading edge of global innovation over the next half-decade, and will transform not just the consumer space, but industries from medicine and finance to energy and defense as well.”

Warren can currently answer sophisticated investment related questions asked by analysts who have no technical expertise whatsoever, such as:

“What happens to the share prices of energy companies when oil trades above $100 a barrel and political unrest has recently occurred in the Middle East?”, or

“What happens to Home Depot, home builder stocks, and cement company share prices following Category 4 hurricane landfalls in the continental U.S.?”

Stanley Young, the former CEO of Bloomberg Enterprise and a Kensho advisory board member, explained one of the major benefits of Warren, “Millions of hours now wasted on spreadsheet manipulations will be saved, and the high-priced professionals currently mired in those tasks will be freed to dive straight into the high-value endeavor of asking important questions and finding needed answers.”

To create Warren, Kensho says it has built one of the largest unstructured geopolitical and natural world event databases outside the intelligence community.

Dr. James Shinn, the former National Intelligence Officer for Asia at the Central Intelligence Agency and the former Assistant Secretary for Asia in the U.S. Department of Defense, has also joined Kensho’s Advisory Board to help the company with this effort.

Dr. Shinn acknowledged, “Event-driven statistical analysis is a remarkably powerful lens through which to understand the world. The effects of geopolitical events on assets — such as oil prices, currencies, and foreign and domestic equity volatility — is one of the least understood areas and, without technology, is one of the hardest, human-labor intensive, and costliest things to measure, despite clearly having massive effects on these markets.”

Warren Gets Smarter

Besides the speed of analysis provided by the system, Warren has been designed to get smarter the longer it is used by a client.  Nadler explains, “Once you get the systems going, it becomes self-learning.”

After being used by several hundred users over the past 4 months, over fifty thousand distinctly new questions have been added every week, making the system smarter and smarter. “That’s the difference between cloud-based systems and classic hardware on desktops – the smartest it will ever be is the day you bought it. Cloud-based intelligence systems get smarter as users use it and ask questions,” Nadler explains.

NASDAQ Platform Adds Missing Part

Some of the more complex tasks required to build Warren were the security and compliance issues associated with the storage and access of market data facing financial services users.

Fortunately, Kensho did not have to solve this problem alone as it built its research and analytics platform on NASDAQ OMX FinQloud, a cloud computing platform designed exclusively for the financial services sector.

Nadler explains the rationale behind this partnership, “Building a virtual market research assistant who you can talk investment ideas over with, and to whom you can express complicated, multi-conditional questions that draw on both structured and unstructured data (from the history of all asset prices to encyclopedias of global events) constitutes one of the most significant engineering challenges in the history of financial technology” Nadler said. “It will require that an intelligent computer system read millions of pages of natural language documents and have total recall of petabytes of financial data, analyzing the cross-implications in a matter of seconds. Computing these massive datasets in near real-time, and performing split-second investment analysis by searching for correlations between unstructured and structured data is extremely computationally intensive, and will require sophisticated distributed computing environments. In overcoming this colossal technical challenge we are pleased to continue our deep relationship with NASDAQ OMX FinQloud, which augments our cloud-computing infrastructure with the additional financial technology necessary to meet the very specific security and regulatory obligations of financial services.”

Another benefit of using the FinQloud platform is that a client can securely plug-in their own proprietary data into the system, which will only be accessible to their queries.  This data, in combination with the standard asset and pricing data available to everyone using the system, will enable the client to conduct more detailed analysis in their specific areas of interest.  This will motivate buy-side clients to continue gathering unique proprietary data that will better inform their own investment research process.

Warren’s Rollout

Kensho has managed the roll-out of Warren in a gradual manner by inviting and/or accepting firms to be beta users, who contribute their feedback and their research queries to the cloud computing platform.  However, the firm has not released a date for an official commercial roll-out of the system.

Currently, investment professionals interested in participating in Kensho’s beta program for Warren can do so by applying at their website (www.kensho.com).  However, it is clear from the site that the number of investment professionals who will be included in this beta will be limited.

 

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