Who says what to which security?

Fintech 2.0: The young financial services company Catana Capital GmbH relies on innovative investment on the basis of Big Data and Artificial Intelligence.

For the first time, a company has taken the risk of, and also succeeded in, mapping the entire value-added chain of a truly automated asset management – from the collection of data and evaluation to the automated order execution – and then creating a robust, risk-optimised asset management approach. For this promising business model, Catana Capital GmbH received the FintechGermany Award in the category Seed/Early Stage conferred by Business Angels Frankfurt/Rhine-Main, Frankfurt Main Finance and the WM Group in April 2017. “There are indeed competitors who also offer or use parts of the value-added chain of an automated asset management, but not the entire process,” says Bastian Lechner, Managing Director and founder of Catana. “We are therefore delighted that the jury at the FintechGermany Awards has recognised this potential and its innovative character.”

Optimal processing of information

The start-up is a licensed financial services institution under Section 32 of the German Banking Act (KWG), was founded in August 2015, and is the world’s first asset manager that relies entirely on Big Data and Artificial Intelligence. “This kind of data usage is the basis for the fact that, in comparison with the competitors, information can be much more effectively identified, or that information can be incorporated in the investment process that may possibly be completely hidden to other providers,” as Bastian Lechner explains the young company’s approach. He goes on to draw a preliminary conclusion: “Catana’s trading strategy is superior to traditional forms of investment through the combination and real-time evaluation of millions of opinions and news items and through its being embedded in an integrated, holistic process.”

The system keeps learning

According to Lechner, information derived from the Internet from six different countries is automatically collected, filtered, weighted and compared with historical price patterns as the basis for every investment decision. Via voice and text recognition, several hundred thousand pieces of capital market-relevant news are evaluated in real-time per day – that corresponds to around two terabytes of data per month or seven information messages per second – and nearly 30,000 securities are covered, including currencies and commodities. The key question to categorise the signal in terms of direction and strength is: who says what to which security? The system assigns to every security a preliminary positive or negative signal based on the collected information. However, before a final trading signal is generated, the Artificial Intelligence system analyses how a security has performed in the past after a similar assessment, i.e. after such a positive or negative signal. “The system therefore checks what the signal has meant for the security. The decisions taken and their results inform the future investment recommendations – so the system keeps learning,” Lechner explains. “In this manner, buy and sell recommendations for German large-cap stocks and index futures are generated in a purely data-based process.”

Exploiting growth opportunities

As Lechner points out, the origins of the Fintech 2.0 company Catana Capital hail from two directions: technology and the need for change in what is still a very traditional asset management climate. “Many asset managers assume that the use of Big Data could help improve investment decisions and returns. But although Big Data and Artificial Intelligence are a huge market with very big growth prospects, there are still practically no investment strategies at the moment that are implemented on the basis of an evaluation of Big Data information and the findings derived from Artificial Intelligence,” the expert notes. Catana Capital GmbH took this as an inducement to develop a new kind of asset management concept based on such analyses in combination with a rigorous risk management. “Two founders of Catana Capital have been working for almost ten years now on financial market forecasting using large quantities of data. We are collaborating in these activities with Stockpulse GmbH in Bonn, which acts as a research and development partner for Catana,” informs Lechner.

Frankfurt offers attractive conditions

Catana Capital GmbH has chosen Frankfurt am Main as its headquarters. “The Frankfurt financial centre offers attractive working and living conditions. At the same time, it also boasts an excellent infrastructure and enables a close integration with traditional suppliers,” as Lechner explains the reasons behind the decision. He is also convinced that the current developments in the wake of the Brexit will further enhance the status of the financial centre. In his view, additional advantages are provided by the various funding programmes at the city or state level as well as the existence of an active and constantly evolving FinTech community with ideal networking opportunities.

According to Lechner, young start-ups have particular potential when their product or service is really completely new or when it is better and/or cheaper than similar products. A large market and customer demand should exist at the same time, he adds. “It’s also decisive that the team has a complementary line-up. Apart from team strength in entrepreneurial aspects, a certain mental toughness is additionally important so as not to lose sight of one’s positive belief in the success of the company during any temporary phases of defeat or failure and to further pursue one’s goals with courage and spirit,” is the final piece of advice Lechner would like to share.