For the first in a series of interviews with Inalytics staff, it was only natural to start with Inalytics’ founder and CEO, Rick Di Mascio. Rick is the driving force behind Inalytics, having founded the firm in 1998. He has experience of working with some of the largest asset managers and asset owners in the world, and was previously CIO of British Coal Pension Fund, and a portfolio manager at Goldman Sachs Asset Management and Olympus Capital. The following has been edited for clarity.
Rick, what gave you the idea and motivated you to start the firm?
I remember it when I was running money or running teams of PMs we had the usual performance and attribution analysis, they recorded what happened but not why. Without empirical evidence of what types of decisions we were good at and what we were wrong there was nothing to stop us making the same mistakes, or let us know what we needed to keep doing. I thought to myself “I can’t be the only person out there who’s faced with this problem,” so I decided to fill that gap with Inalytics.
Did the industry buy into this idea, that you can use the success and failure of past decisions to measure investment skill and improve outcomes?
I joke that we were 15 years too early, but that is about right. For the first 10 years it was really a minority, but we had enough supporters and early adopters to keep going. Over the last 5 years it really became mainstream as our everyday lives are now dominated by data and technology more and more every day.
How has the offering and service evolved since you started?
At its roots, the service is the same, but what has changed is the level of sophistication. We started with buying, selling and holdings decisions which is still the case. Now the analysis goes much deeper into the various types of decisions such the split decision to close an underperformer versus a winning buy. In very the beginning we were probably analysing 12 different types of decisions, now it’s almost 400, including our bespoke analyses, taking clients information on analyst recommendations, conviction ratings, or any other input in their decision-making process.
You mentioned the research you have done on investment decisions. You’ve worked with a lot of academics, both on research projects and peer-reviewed academic papers. What do you think makes Inalytics so well-placed for that?
Fundamentally it’s because I think it’s really important to continue to innovate and improve our analysis. Given that we have accumulated data for over 20 years, it’s not surprising that our peer group has been described as the world’s largest database of investment decisions. So it’s just an extremely valuable utility that makes us appealing as a research partner to Academics.
You consult with both asset owners and managers, giving you an interesting perspective on the investment process . How does your process differ between the two?
It’s really the purpose that’s different. For the asset owner or allocator, they want to get behind the track records and spin to see what’s actually driving the performance. In the words of one client, “you help us ask the questions we wouldn’t have been able to ask otherwise, and sometimes the ones that the managers wouldn’t want us to ask.”
With managers the focus is on improving the investment process, helping them do more of what they’re good at and less that what they’re maybe not so good at. Up until several years ago that wasn’t really widely understood, but now it’s becoming much more accepted that you can use data to improve a process and improve decision making.
What do Inalytics clients have in common?
Our clients are all people who want to improve their decision making and ultimately do a better job. They understand this is a highly competitive environment. If winning isn’t absolutely at the core of their motivation, they’re not going to be interested, but the people who want to do a better job and want to win, they are our natural clients.
So in many ways those are the characteristics of successful managers in general?
And in all walks of life, like sport. I’m rubbish at golf and have no interest in getting better, so having my game analysed is irrelevant! But the best players today are data-driven, continuously refining and improving. If you want to do well in anything, a real understanding of your own process and its strengths and weaknesses, is essential.
Given the long-term trend towards passive management, do you think there’s still a place for skilful active managers?
Every day our data shows that skill exists. Does mediocrity also exist? Yes, but there is undoubtedly a significant minority of managers who are consistently skilful. So yes of course there is a massive move towards passive management in all forms, but at the same time there will always be opportunities for those with real investment skill as long as human beings are involved in the process.