HFC’s Stefan Nilsson decided to have a chat with Scott Treloar about Noviscient, the Singapore-based investment company he founded in 2016. Treloar has a solid background working in hedge funds, private equity and banking, where he has primarily worked on portfolio management and risk management, much of it focused on quantitative analysis and systematic trading strategies. “At Noviscient we offer something new and better” says Treloar.
Firstly, can you tell us about Noviscient and what you are trying to achieve?
Noviscient is a next generation investment manager. We are based in Singapore, but work with partners from around the world. We are aspiring to become a trusted partner of our investors by offering alignment, performance and transparency. Our first product is a dynamically allocated portfolio of systematic trading strategies called Liquid Systematic Trading.
Last year was the worst year for hedge fund start-ups and closures since 2008. Why are you are starting a fund now?
As it happens, we think now is the perfect time for us to start Noviscient. We see three big themes impacting investment management and we aim to take advantage of all three.
1) Technology wave – Cloud computing, big data and machine learning are driving fundamental change in all businesses. Investment management, as a pure information processing business, is particularly affected. These technologies are changing the basis of competition. Alpha no longer comes from privileged access to information, but rather from finding new sources of information and then using non-standard approaches for analysis and prediction. Smart use of modern technologies also enables companies dramatically lower their cost of doing business.
2) Partnering over employment – We also see great change in how people work. The gig economy, where people want to partner and consult rather than become employees, has been on the rise for several years now. It enables new and more flexible ways for companies to access the best global talent. We see many prospective traders and portfolio managers looking for new ways to offer their skills and work together.
3) Alignment of interests – Investors are frustrated with the current situation. Investors see that outsourcing their investment requirements to managers is expensive and producing lacklustre outcomes. There is a sense that investment managers are focused on building assets to increase management fees rather than on generating out-performance. They are losing faith in their investment managers and pulling out their money at an increasing rate. For want of better alternatives, this money is going to passive managers.
In summary, the traditional model of active management is coming to an end. At Noviscient we offer something new and better.
So, if the traditional model of active management is broken, how can Noviscient help investors?
At Noviscient we are building a new and innovative business model that acknowledges and addresses these three themes of technology, partnering and alignment. Our business model is a coherent system that creates value for our investing partners while being difficult to replicate, particularly for incumbent managers. Firstly, we were born digital. Our technology exists in the cloud and has been built to be modular and to take advantage of open source software. This allows us to operate at very low cost. It also enables the use of machine learning techniques both for finding alpha, using alternative data and for optimising our operations. A second element is that we partner with our systematic traders rather than employ them. We offer modern infrastructure, capital and attractive profit sharing. This positively selects for systematic traders who are very good. Interestingly, often our traders are from non-traditional backgrounds. The final element is our focus on alignment. We have no management fee. We have first loss protection. Profit sharing is only on performance. In other words, we are strongly aligned on both the upside and the downside with our investors. We want to signal to them that we are on their side as true partners. Our success is tied to our investors’ success.
If you hadn’t been a fund manager, what would you have been doing?
Well, I was a ski instructor in Austria for three years. That profession held a certain attraction. Alternatively, and completely orthogonally, I would have liked to have become a mathematician. I find mathematics very interesting and very influential in an understated way.