In 2019, quantitative hedge fund Two Sigma launched Venn, a risk management and portfolio analytics service, a business long dominated by BlackRock’s Aladdin platform.
Four years later, Two Sigma’s Venn has hundreds of clients of all sizes, including pension funds, endowments, foundations, family offices, RIAs, and wealth managers, which collectively oversee more than $10 trillion in assets. The explosive growth is just one reason why Two Sigma’s Venn was named RIA Intel’s Most Innovative Technology of 2022.
According to CEO Marco Della Torre, the platform grew quickly because Venn focused solely on what clients truly needed. “I think a lot of technology companies get enamored with building their technology, rather than listening to what their customers are really asking for,” Della Torre said. “When we start to talk to our clients about not just going digital but going beyond the capabilities that they thought they were limited to, it really kind of gets them excited.”
When investors look to diversify their portfolios by adding a broad range of asset classes, risks that drive correlation can be easily obscured. But with a seventeen-plus-factor lens backed by Two Sigma’s factor-risk model, Della Torre said Venn can give investors transparency and help them efficiently manage a portfolio’s risks and expected returns.
The platform also allows users to search for specific exposures, hedge unwanted risk, or compare multiple managers for a side-by-side view of key metrics. It allows them to dive into a single investment to correlate its risk and return with common risk factors, run one-month market-index scenarios to test an investment’s resistance to market shocks, and analyze whether a new manager would be additive to the portfolio. The platform then determines an optimal rebalancing of assets.
The company provides clients with high-quality data by sourcing a library of data sets and gives them the know-how needed to leverage and act on it. Venn’s focus on building relationships with their clients includes training them how to use the analysis, modeling, and portfolio optimization tools available through their software — servicees that have traditionally only been available to a very small set of the market, and at a huge cost. Even clients with small teams now have access to sophisticated intelligence. This all allows clients to understand how a portfolio might react to market shocks or past events, determine what future capital-market expectations might mean, and what influence a proposed change will have on a portfolio’s outcomes and goals.
Clients can set any number of parameters. For example, they can take an objective such as maximizing portfolio returns at a certain level of volatility, and then apply constraints to the portfolio based on the organization’s investment policy. Venn will then provide a graph of the results for both optimized and alternate portfolios, and include the trades required to realize these optimized portfolios.
Two Sigma’s Venn has formed a number of strategic partnerships, including two with crypto firms Coinbase and Coin Metrics.
The partnership with Coinbase will help empower institutional investors with the insights needed to incorporate the risk analysis of digital assets into their allocation frameworks. “We’re teaming up with Coinbase to help capital allocators and portfolio managers bring crypto into context and to support their need for insights about multi-asset-class analytics,” said Della Torre.
Venn has also partnered with Coin Metrics, an institutional crypto intelligence provider. According to CEO Tim Rice, the company has developed data intelligence products that aggregate “different crypto pricing across various exchanges into a single time series of performance data [to] allow for accurate evaluations of risk and return properties.” The integration of this data into Venn’s platform makes Rice confident that a new class of allocators will have the data needed to analyze digital assets and diversify their portfolios using their existing playbooks.
“Crypto has captured the imaginations of a broad spectrum of the world,” Della Torre said, “and rather than establishing our own position, we are building the tools [that will allow managers to craft] their own response to the market by bringing in the workflows they are familiar with and that they know how to work.”