Northern Trust Invests in Firm to Boost Active Manager Alpha
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Northern Trust Strategic Investment in Essentia Analytics Adds Innovative New Dimension to Whole Office Strategy
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Northern Trust takes stake in behavioral analytics and consulting firm Essentia Analytics
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The failure of active managers to beat passive strategies has been pinned on everything from the real-time and widespread availability of valuable corporate data to complex market structure dynamics.
But new research shows that active management’s biggest challenge may come down to human nature and behavioral mistakes. Human nature is a complex problem, but behavioral mistakes can be fixed.
Essentia Analytics, a data analytics company based on behavioral science, is attempting to correct behavioral mistakes by sending portfolio managers simple but customized messages, called nudges, asking them to do things like take a second look at a growing position. Essentia found that portfolio managers who engaged with the nudges outperformed their benchmarks by 1.6 percentage points on an annualized basis, compared to those who did not pay attention to the messages. Essentia analyzed 75 equity portfolios and 15,000 nudges sent to real portfolio managers between mid-2018 and March 2021.�