You can’t disrupt an industry without disruptive technology, not anymore. I learned this one the hard way, through failure. The best lessons come from failure.
A couple years ago I discovered inefficiencies in the way that ETFs and Mutual Funds managed securities lending. Pretty big inefficiencies, it turned out. So I dove head first into the sec lending space, partnered with my brilliant friend and subject matter expert Mike Fonseca, and set out to remake the way funds do sec lending.
SecLenX was born.
Within three months I learned this lesson. You can’t disrupt without disruptive tech. We had found the inefficiency, we developed the thesis, and we built a service-based model to solve it. But we didn’t develop any tech, and because of that no one would invest in the idea.
SecLenX was dead.
You can’t disrupt an industry without disruptive technology.
I never thought very deeply about REITs. Chances are you haven’t either. A REIT is a REIT, as far as I knew, and who’s got time to think about REITs anyway. I was wrong.
I’ve written about this before, about my a-ha REIT moment. It was when my colleague Al Otero sent me a REIT sub-sector correlation matrix. I could not believe how low the correlations were. As it turns out, a REIT is a tax treatment, not an asset class. So when you index anything that calls itself a REIT together, what you get is a mess of companies that have little to do with each other, qualitatively or quantitatively.
I saw the opportunity in front of me. I saw the REIT opportunity. But you can’t disrupt an industry without disruptive technology.
A couple years earlier Roni Appel was sitting in Tel Aviv with a similar problem. He’d been investing in REITs for 20 years, and he was frustrated. The data available for international REITs was incomplete. The trading signals made no sense - one day this factor would matter, the next day another factor. The tools he needed to develop a quantitative approach that could provide a deeper understanding about what was driving REIT valuations did not exist. So he set out to build them.
Roni’s friend Richard Berman, himself a famous investment banker, introduced Roni to Professor Assaf Zeevi. Professor Zeevi is the holder of the Kravis chair at the Graduate School of Business and member of the Data Science Institute, Columbia University. I am tempted to list his entire resume because it is that impressive, but I’ll just stick to the boilerplate, that he is recognized globally for his thought leadership in the areas of machine learning and data science.
So Roni and Assaf got to work re-thinking REIT valuation models, incorporating artificial intelligence and machine learning into no less than 25 individual models, all dedicated to understanding the specific nuances of REITs. Some are top-down, some are bottom-up, some are optimized versions of traditional metrics, some are new ways of looking at the markets. Some models simply determine which of the other models are important, and at what times. All of the models utilize cutting edge machine learning technology that are self-optimizing.
All of the models were designed to give investors a deeper level of understanding of REIT valuations, their drivers, and their cycles.
And today, I am beaming with pride as I get to announce the merger and partnership between Armada & Arialgo. The details are here in the press release. The beauty is in the shared respect and trust. The magic is in the shared vision.
The hard work, and there will be hard work, is in the execution.
Because you can disrupt an industry with disruptive technology.