There’s a big group gathered for this session. Ben introduces his talk as about technology in the financial industry and its future users. He’s running an open discussion and is setting his main objective as not starting a fight.

He works for a Hedge Fund, working in the City managing money. A Hedge Fund ‘hedges its bets’, and in theory makes steady money. The fund he works for uses computing and mathematics to manage the fund.

The crowsourcing aspect comes from a website where people who have market knowledge can give them ideas. Software then puts that information together and tries to extract wisdom from the crowd. People are paid a commission for productive input.

Peter Hopton asks: What about market manipulation? They have to be very careful and they don’t disclose people’s ideas. Protecting against it is tricky and requires regulation and trust relationships. Twitter is becoming the means by which this kind of exploitation can happen, allowing fast pushing of information out there.

The advisers are given a virtual portfolio – that’s how their input is obtained. It’s like a game, but if you win you make real actual money. Social aspects like ranking systems can take the place of cash incentives.

It’s easier to sell this idea, known as Alpha Capture, than it is to sell ‘black box’ solutions to investors.

Helen Milner asks: Are there other sectors than the financial sector that could use these approaches? Yes, for example crowdsourcing ideas instead of financial information.

Aden Davies wonders what kind of analytics is done? The analytics involved are algorithmic, approaches that can be proven, and a great deal of analysis is done on things like the time of day and the past record of a virtual investor, to try and optimise the use of capital.

Peter Hopton thinks the virtual approach has the potential to improve performance in itself by eliminating the individual risk to investors – he’s thinking of online poker and the like, where the fantasy portfolio invites people to be more daring.

Helen Milner mentions that the analytics might identify star individual investors who could be directly employed. Ben says that changing the environment your star investor works in can take the edge away – the crowdsourcing approach allows them to get the value without upsetting people’s environments.

Question – what about insider trading? Ben says it’s always a risk, regulation, reporting and trust help to mitigate it.

There is a period of ‘probation’ when a new user comes onto the system. No real money is invested until this probationary period is over. System users are regulated financial people, and as yet people outside this category can’t participate because of the need for regulation. Ben thinks that opening the system up to the public to manage their virtual portfolios will happen at some point.

‘Hedging out market risk’ and being market-neutral helps to ‘hedge’ and balance off market fluctuations. Their system takes buying an selling which helps to balance and avoid bubbles, in response to a question by Peter Hopton, whether systems like this contribute to bubbles.

Ben’s company brings in social aspects like blogs to keep people active and interested in the system, at which point time runs out and Ben wraps up the session.

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