Q. Mike, how is FlowPro capable of adding value to investment or trading decisions by providing new insights?

A. Hi! Well, the intention of FlowPro is certainly to add value to investment or trading decisions, and indeed to do so through providing new insights. We think the best way of judging whether we are adding value or not is to look to our customers; are they renewing their subscriptions?; are they happy to pay more each year?; are they recommending our work to their co-workers? and so forth. The answer to that is Yes.

But what got FlowPro started, before the first customer validated the work, was a belief that value could be added through an original product.

Q. Tell me about what got this started.

A. Well, what the founding team at Exante Data noticed, and what I noticed before I joined, is that there is a particular subset of question that investment managers and other investment professionals often try to answer when evaluating investment decisions, founded in the belief that markets work in ways that cannot entirely be explained by fundamentals, psychology, past price action or other more established approaches. People call this set by various names, such as “investor technicals” or “supply and demand”; we use the most common: “Flows and Positions”.

We’ve both also noticed that the data and research in this field was limited, unlike, for example, macro research, where the state-of-the-art is good and getting better all the time.

An example of one of the few research papers is by two distinguished academics:

– Xavier Gabaix, the Pershing Square Professor of Economics and Finance at Harvard University

– Ralph Koijen, the AQR Capital Management Distinguished Service Professor of Finance and Fama Faculty Fellow at the University of Chicago

In Search of the Origins of Financial Fluctuations: The Inelastic Markets Hypothesis
Xavier Gabaix and Ralph S. J. Koijen, NBER Working Paper No. 28967, June 2021, JEL No. E7

“We develop a framework to theoretically and empirically analyze the fluctuations of the
aggregate stock market. Households allocate capital to institutions, which are fairly constrained, for example operating with a mandate to maintain a fixed equity share or with moderate scope for variation in response to changing market conditions. As a result, the price elasticity of demand of the aggregate stock market is small, and flows in and out of the stock market have large impacts on prices.“

Hence, FlowPro: a solution to this problem.

Q. How should people think about FlowPro then? Is it a data company? Is it research?

A. We’d like you think of FlowPro as two things. One is – yes – largely about data. And the other is – yes – about research, or rather, about the human judgement of what data is relevant, and what that cannot be quantified is important. 

The first purpose of FlowPro is to bring order to the chaos of flows and positions data. This is largely a data wrangling or data preparation problem. There are huge quantities of data on the movement of investment capital around the world, and on the holdings, positions and allocations of investors. These data are the foundational building blocks for alpha generation through the flows-and-positions approach, but they are not easy to obtain, and some need to be transformed. We have invested a large amount of money and time in developing software and know-how that we use every day to process these inputs into usable data that our clients can access in various ways, such as via API or through our web portal.

Exante Data, founded in 2016 by Jens Nordvig, set out to solve this problem as one of its key tasks, and has been developing a dataset called “Global Flow Analytics” over many years. In 2024, Exante Data acquired a data vendor called Trounceflow.

The second purpose of FlowPro is to bring human judgement to bear on the data, in order to help clients know what to do. This is more than just an analytical problem of examining the data. Rather, the problem is deeper: there is no established framework for making that analysis. There is no equivalent to the macroeconomics or finance textbook. That’s part of what makes it interesting!

The central original thought we would like to offer is that there is something called “Positioning” and that it is something that can be measured to an extent in advance – ex ante – and judged in advance, such that investors can evaluate investment decisions with knowledge – or at least a good estimate – of what positioning looks like. For example, the emerging markets debt team at a client may be evaluating whether to take extra risk in South African government bonds. One of our roles is to help inform them what positioning in that market looks like, so they can make an informed judgement as to whether that would be an additional positive for their decision, or a factor working against it, or otherwise.