Indie Boutique CreditSights Embraces Machine Learning

By Sanford Bragg September 15, 2020

Leading independent fixed income research firm CreditSights made a minority investment in Alphastream to leverage the Singapore-based fintech firm’s machine learning expertise.  The move was part of a broader strategy to expand the firm’s quantitative and data offerings.

CreditSights is using Alphastream’s AI platform to extract data from debt offering documents, press releases and regulatory filings.  “Offering memoranda will be available to our analysts and end clients within minutes of filing,” said CreditSights CEO Peter Petas in an interview. “Our partnership with Alphastream will not only significantly reduce the time and effort required to assemble data but also provide opportunities to create new insights and build analytics for our customers.”

The firm recently launched covenant data and analytics covering the European high yield sector and will be using Alphastream’s platform to expand covenant data for other debt sectors. 

In addition to machine learning tools, Alphastream offers an API with over 400 datasets including alternative data, which CreditSights intends to leverage to “get the full picture.”  One potential use case is using the news stream that Alphasteam aggregates from over 1000 sources to identify company or sector-specific events that move markets. 

The investment in Alphastream is part of a broader strategy to supplement CreditSight’s core fundamental offerings with datasets and quantitative tools that add value to the credit decision-making process.  One recent example is a model which predicts the likelihood of an issuer falling into junk status.  “In response to the COVID crisis and customer demand, we rolled out our Fallen Angel Score, which uses quantitative modeling to identify the companies most likely to drop to below investment grade,” said Petas.  “That product, in turn, has sparked interest in a Rising Stars Score.”    

Petas indicated that MiFID II has been a slight negative for the firm as it now competes against formerly ‘free’ bank fixed income research for the allocation of dollars.  This has been mitigated by the fact that CreditSights has always been included in hard dollar budgets, having never relied on commissions or soft dollars. Moreover, MIFID II has accelerated the exit of broker dealers from publishing credit research as more brokers move to a desk analyst model.

Asia Pacific is the firm’s fastest growing region, and CreditSights recently announced a new Singapore-based head of Asia Pacific research who was formerly a regional head for Mizuho Securities Asia.   Petras cited growth in the Asian private bank space as regional wealth management assets have been growing rapidly. 

Founded in 2000, CreditSights covers 1.200 investment grade, high yield and distressed issuers with a team of 107 fixed income analysts.  The firm’s research also covers US municipal bonds, credit ETFs and emerging market debt.  Risk products include Bond Scores which provide a 1-year probability of default for 4,800 issuers and medium-term quantitative credit ratings for 5,400 issuers.  The firm has 1,200 clients globally.

Total staffing is around 200 employees in the firm’s major offices in New York, London, Singapore, Denver and Glasgow.  LinkedIn registrations have grown 12% over the last twelve months and nearly 30% over the last two years. 

Our Take

Large banks are throwing large sums at artificial intelligence, but that doesn’t mean that smaller research providers can’t compete.  CreditSights’ deal with Alphastream is a good example of leveraging external platforms to avoid the expense of developing extensive AI capabilities in-house.

There are a variety of options available to research firms large and small, and the options are growing.  At the low end, even small boutiques can take advantage of platforms such as Sentieo,  which offers a machine learning-based Smart Summary™ for earnings transcripts, increasing the speed and efficiency during the crush of earnings season.  Aiera, which secured $7 million in a Series A funding in February 2020, pivoted to emulate Sentieo as a productivity tool for analysts (buy-side or sell-side) during the stress of earnings releases.  Causality Link, which raised $5 million earlier this year, positions itself as an AI-powered research assistant.   

CreditSights’ partnership goes a step further in that the deal with Alphastream not only yields efficiencies, but also the opportunity for new product development.   This requires more effort, and a bigger investment, but will likely pay dividends for CreditSights.    

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