Trusted InsightxData Science: Paul Willard and Chyi-Kwei Yau on Building Data-Driven Products

What: Cohort Analysis and the Multi-Armed Bandit, or How to Use Data to Increase User Retention

Who: Paul Willard, ex-CMO @ Atlassian, Practice Fusion, Coupons.com, current Managing Partner @ Subtraction Capital and Chyi-Kwei Yau, head Data Scientist at Trusted Insight

Where: Alley NYC, 500 7th Ave @ 37th St

When: 6 PM

Cost: absolutely free.

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This Week's Revolving Door: CIC Snags an Ag Banker, the Pope Poaches from Invesco

  • Jeannine Caruso left the Dyson Foundation to become a Partner at New Providence Asset Management.
  • Abdulmagid Breish is no longer the Chairman of the Libyan Investment Authority. 
  • Jean Baptiste de Franssu left Invesco to become President of the Institute for Religious Works (aka the Vatican's bank). 
  • Christopher Culbertson left the Davidson Endowment to oversee asset allocation and manager due diligence at Verger Capital Management. 
  • Christopher D. Murray left the University of Idaho to become CEO and President of Montana State University Alumni Foundation.
  • Howard Sage retired from the board of the North Dakota Public Employees' Retirement System
  • Robert Manilla, VP and CIO at the Kresge Foundation, and Ricardo Castro, VP and GC at the Ford Foundation, joined the board of the Foundation for Detroit's Future. 

Sovereign Wealth Funds Bank on the UK, Developed Real Estate, and Infrastructure, avoid Russia

Sovereign Wealth Funds Bank on the UK, Developed Real Estate, and Infrastructure, avoid Russia

In the past two weeks, two of the world's largest sovereign funds -- the Abu Dhabi Investment Authority and Norway's Government Pension Fund Global -- released annual reports. While neither goes into much detail about specific investments, they do address current and future asset allocation. (Indeed Abu Dhabi's report devotes a good chunk of its 65 pages to the topic -- an unusual level of transparency for a fund that once welcomed opacity with open arms.) The ADIA and the GPF have large, experienced, and savvy investment staffs and hire top-notch managers, making their asset allocation strategies useful even for institutional investors who can't shoulder much short-term risk. For an additional data point, I've pulled out trends from Invesco's latest SWF report, which is short on sleek pictures and long on well-designed charts.

Can Blackstone's New Hedgefund Rival Citadel and Millenium?

10 Things to Know About Blackstone's New Hedge Fund

  1. Blackstone's expansion to hedge funds comes as increased regulations due to the Volcker rule shut out banks from operating a speculative trading desk with their own capital. 
  2. This hedge fund won't be Blackstone's per se, rather Blackstone is setting up a 'condominium structure' whereby 'talented risk takers' can operate their own separate companies within Blackstone's infrastructure.
  3. Blackstone thinks the new hedge fund will grow and eventually become a rival to established names such as Ken Griffin's Citadel LLC and Millennium Management LLC.  
  4. Parag Pande will be managing the new edifice. Pande joined Blackstone from Ziff Brothers as head of research a few months ago. 
  5. Blackstone wants to hire former traders who were pushed out by new regulations. They are also interviewing traders at existing hedge funds who may want to start their own.
  6. These traders won't be Blackstone employees, but rather they'll be in independent management companies. 
  7. Blackstone is in final negotiations with the first teams that will start this autumn. 
  8. The hedge fund will start with $500M, including borrowed money. In total, the managers will probably oversee billions of dollars in positions collectively before the end of the year. 
  9. Blackstone already manages $58.3B in assets at its BAAM hedge funds solution division. Most of it is invested in 3rd party funds, but the firm also has $5.5B invested directly across its platform. 
  10. This isn't the first time a PE firm moved into the hedge fund business. Blackstone's rival, KKR & Co. LP started its own internal hedge fund, but it closed down earlier this year when it failed to attract enough investors and meet performance objectives. 

 

Venture Capital Charlatanry: a (Recent) Retrospective

Venture Capital Charlatanry: a (Recent) Retrospective

International Technology University loses $120 million of its LP commitments after soliciting political contributions from the startups it financed. State and federal laws prohibit VCs from requiring political giving by the companies they finance, and the Colorado and New Mexico courts demanded ITU repay the pension firms from those two states. Other LPs fleeing the firm included Harvard University and CalPERS.

Growth in the Summertime: New Funds from Lerer, Khosla, Shasta and Greycroft

  1. Greycroft Ventures closed a $200 million growth fundInteresting because NYC's venture capital fundraising is mostly seed-to-early-stage (First Round Capital, Brooklyn Bridge Ventures), or really late stage (Bessemer Venture Partners). Also interesting because a number of Greycroft's hallmark investments are digital media companies, including the Huffington Post. Lastly interesting because 90% of Greycroft's deals are outside of Silicon Valley. 

ETFs, Gold, and Teslas: Where Top US Endowments are Placing Their Bets

ETFs, Gold, and Teslas: Where Top US Endowments are Placing Their Bets

What do Dartmouth, Emory, HarvardMITStanford, U Chicago, the University of CaliforniaUPennUSCUT, and Yale have in common (besides the obvious)? Though some are private, some are public, some are research universities, and some are colleges, all rank among the largest university endowments in the world. And, as a scan of their recent 13F/HR filings reveal, they also share common investment preferences.

Uber Bandits: why First Round Capital and Lowercase Capital are the Real Stars of Uber's $1.2 Billion Series D

Uber Bandits: why First Round Capital and Lowercase Capital are the Real Stars of Uber's $1.2 Billion Series D

As you may have heard, Uber just raised a $1.2 billion series D on a $18.2 billion valuation. This is, obviously, great news for the fountainhead; it’s also great news for the already shiny track records of First Round Capital and Lowercase Capital -- the micro vc firms who gave the cab(/boat/jet)-hailing app its first institutional capital.

Marc Andreessen on the Risk and Return of High-Tech Startups and VC









Inflection Points and Reimagination: The State of the Internet, Per Mary Meeker

I just finished plowing through almost all 164 pages of Mary Meeker's annual Internet Trends report. By almost, I mean, not the part about screens and TV, because there are only so many hours in the day, am I right? But I read the rest of it, and now you don't have to (though you may want to, if you have the time). Here are ze key themes:

INFLECTION POINTS: HEALTHCARE AND EDUCATION

1. EDUCATION: 

At an inflection point because it's too expensive for both the government (US ranks 4th globally in expenditure per student amount 34 OECD countries) and the students -- 71% of 4-year college grads have an average of $30k in student loan debt. It's also ... not that great: we rank 27th globally in math, 20th in science, 17th in reading, and 1/3 of 4-year college grads feel their education did not prepare them well for employment.

Signs things may change: personalized education is ramping up, distribution is expanding, and edtech startup costs are decreasing. Two global examples o' the power of edtech are Coursera (35% North America, 25% Asia, 23% Europe) and Duolingo (30% Europe, 29% Latin America, 25% North America). 

2. HEALTHCARE:

At an inflection point because it, 1) like education, is incredibly expensive, and for what? Healthcare eats up 17% of our GDP ($2.8T) right now, and 27% is unnecessary. Employers are paying 28% more than they were 5 years ago, and 67% of CFOs indicate healthcare costs are a leading economic concern. 25% of family income likely to go to healthcare spending in 2015 vs 18% in 2005, and a full 50% of personal bankruptcies are driven by healthcare costs. And 2) the majority of healthcare costs are from chronic--but preventable--conditions like type 2 diabetes and obesity. 

Signs things may change: digital technology is replacing incredibly antiquated systems, thanks to increasing venture investments and government initiatives like HITECH Act and the ACA. Additionally, consumerization of healthcare is on the rise, and programs and applications that encourage patient engagement and preventative care are yielding positive results. Examples of these:  Redbrick Health's employer engagement program gives 4:1 ROI savings per participant. Teladoc's employer focused telemedicine platform = $798 savings per consultation vs office visit & er, Mango Health users have 84% statin adherence vs 52% market average.

 

CHINA

Some people are not feeling so bullish on China these days, but Mary Meeker is not among them. Here is why:

  • China now has 16% of global GDP, same as Europe (US has 19%, India has 6%, Latin America has 9%)
  • 80% of China internet users are mobile -- more critical mass than any place in the world
  • China is a mobile commerce innovation leader. Tencent has a My Bank Card page, and a WeChat virtual assistant. Didi Taxi, which is driven by wechat payment integration and subsidy, has 100mm users and 5mm daily rides, and has grown 15x in 77 days. Alipay Yu'E Bao's Mobile Money Market Fund launch drove $89bn AUM in 10 months, putting it just behind Fidelity and Vanguard.
  • Tencent is just behind Amazon in global internet public market leaders. It's spent more ($7bn) in investments than anyone. Alibaba has spent more on combined m&a and investments ($10bn) than anyone but FB and Google

 

TECH VALUATIONS: 

Mary agrees there is a bit of excess valuation happening, but both VC financing volume and S&P value pale in comparison to the 1999-2000 peak levels.


MOBILE:

1. SMARTPHONES: Fastest internet and smartphone growth is happening in emerging and frontier markets, especially India, Indonesia, and Nigeria. These markets are not easy to monetize. 

2. TABLETS: Tablet purchases are growing faster than PCs ever did (+52% last year), and its early stages yet.

3. MOBILE WEB: Globally, mobile made up 25% of total web usage in May of 2014, versus 14% in 2013. The countries with the highest percentages of mobile web users are Africa (38%) and Asia (37%). 

4. MOBILE ADVERTISING: Now pulling in $12bn a year, but growth has flatlined. Google's ARPU has grown y/y, but Facebook's and Twitter's have shrunk.

5. COMPUTING CYCLES: Each new computing cycle typically generates around 10x the installed base of the previous cycle.  

 

CYBER:

There are big, increasing threats of cyber attacks -- the number of active threat groups has increased by 4x since 2011. With big danger comes big business opportunities, me thinks. Bessemer's David Cowen seems to agree.  

 

SOMOLO / LOMOSO / MOSOLO:

1. MESSAGING APPS: Will have over 1Bn users in under 5 years. These apps are creating new social graphs where edges > nodes. 

2. IMAGE + VIDEO SHARING: rising rapidly.

3. APPS: Are all single purpose now, and moving towards apps-as-service layers.

4. SOCIAL SHARING: Is that redundant? Anyhow, Facebook is the top source of social referrals (21%), followed by Pinterest (7%), and Twitter (1%). Article shelf life is longer on Facebook (9 hours to reach half its audience) than Twitter (6.5 hours). 

 

REIMAGINED

1. PEOPLE ENABLED WITH MOBILE DEVICES AND SENSORS UPLOADING TROVES OF FINDABLE AND SHAREABLE DATA: Aka Github, Instagram, sensors etc. Mary says this is the big kahuna of reimaginations, because it is making the world better and safer and solving both basic and complex problems, but also compromising privacy and individual rights.

2. DAY TO DAY ACTIVITY: Tinder. Airbnb. Uber. Alibaba. Grubhub. Instacart. 

3. MUSIC: Streaming is growing, digital track sales are waning, physical musical sales are gasping for air. 

4. MONEY: 5 million bitcoin wallets exist, which is a 8x growth from last year.

5. INDUSTRY VERTICALS: These have the internet trifecta: critical mass of content (via consumers and pros), community (context and connectivity by and for users), and commerce (products tagged and ingested for seamless purchase)

6. SOCIAL NEWS CONTENT: Buzzfeed, Huffpo, ABC lead sources across the board, but BBC, NYT, and Mashable are the most read on Twitter. Buzzfeed is reimagining content, serving up lots of lists, quizzes, and explainers. Your call if this is a good thing. 


BIG DATA

Uploadable/findable/shareable/real-time data rising rapidly, sensor use rising rapidly, processing costs falling rapidly, beautiful new user interfaces, data mining tools improving, data/pattern-driven problem solving increasing. 

 

All images credited to Kleiner Perkins Caulfield & Byers

 

 

[Note: If you prefer your predictions to be delivered more frequently, in smaller portions, I recommend Benedict Evan's blog, but when it comes to blow-out feasts, Meeker delivers.] 

 

A Fabulous Combustion

A Fabulous Combustion

Whatever this pivot is, it will be Fab’s third. The 80-90 newly sacked employees bring the company’s ten month layoff total to nearly 400. To me, the glaring question is not: How can a company that has raised so much cash and has a $1bn valuation fall so fast? but rather: Why was it ever “worth” so much, so quickly, in the first place?

Public Pensions May Retreat from Hedge Funds, with CalPERS at the Helm

Consider culling $5.3 billion hedge fund portfolio in half  

The California Public Employees' Retirement System's hedge fund Allocation has been under review since January and CalPERS will have their board meeting in the third quarter to officially review.    

The CalPERS Board has not made their final decisions but its been suggested that allocation to Hedge Funds should be reduced.  What this means for Hedge Funds and other Pensions is TBD but the odds aren't in Hedge Funds favor.  

CalPERS was the 1st to commit to Hedge Funds and the 1st to almost announce their removal;  Trend setter anyone? 

Bloomberg seems to think so.  Pensions are under pressure in general to cut costs and Hedge Funds are 'under pressure' to increase them.  Maybe the opposites are detracting? Pensions, Endowments, and well, people in general act in herds; whats good for the ram is good for the lamb.  

The Rumors:

According to P&I

  • Portfolio Managers called the 13 Hedge Fund Managers, dropped 3 completely and warned of reducing the other 10s allocations.   
  • Hedge Funds-of-Funds is being reduced from 5 to 2.  The current portfolio weights about 30% HFoF and will dwindle down to 15-20%. 
  • Surprisingly, Hedge Funds have performed above the 5.3% benchmark and are currently at 9.2% (Dec 31) though the 3-year and 5-year annualized return are not as spectacular.
  • Real Estate is coming up to bat again.  This will make up for 2% of the Hedge Fund drop.  Perhaps Pensions and Endowments are swinging on a more stable housing market than hedge funds in the future...

Read the 2013 - CalPERS Annual Investment Report Here

The British/Chinese/Spanish/Greek Are Coming! 14 Foreign Companies with Upcoming US IPOs

JD.com, Alibaba's counterfeit-glutted competitor, filed for the largest max of all. Rounding out the top five are British financial data provider Markit, Spanish renewables maker Abengoa Yield, and Chinese makeup e-shop Jumei. The sudden rush may have something to do with the market finally reaching its local maximum on tech stocks -- there seems to be a general urge to strike before the metal cools, now that there's decent proof of cooling. 

Retail Investors and Alternatives: a (Future) Love Story

Or, notes from McKinsey’s presentation on The Mainstreaming of Alternatives: Where do we stand today?

Recently, we’ve been hearing increasingly wistful reports on retail investors and what they can do for alternative fund and asset managers. Retail investors, long inured to equities and bonds, are now, it seems, cottoning onto the bigger payoffs alternatives can afford [1]. Over the next five years, these individual investors will account for over 80% of new revenue in the alternatives industry.

Since 80% is a p r e t t y significant proportion, I thought I’d dig out the rest of the insights from this report. 

Alors, here they are; make of them what you will: 

The pronouncements:

  • Investment management is going retail
  • Alternatives are a big part of the future of retail
  • The first act of retail alts has been dominated by large traditional asset managers with large flagship funds
  • The next act will be defined by a “trillion dollar” convergence in investment management, wherein retail will invest in traditional asset managers, hedge funds, fund of funds, and mega alts via intermediaries

The stats:

  • alts could account for up to 25% total us retail revenues by 2015
  • retail investors invest the largest amount in hedge funds, followed by real estate and real assets, alternative etfs, and alternative closed end funds.
  • unrated alt funds attracted $50b of new flows in 2013 from retail and intermediaries
  • first act of retail alts dominated by large traditional asset managers with large flagship funds: 438 small funds nabbed 6% of flows, while 25 funds nabbed 71% of flows

As for why retail alts is going mainstream, McKinsey offers six reasons: 

  • disillusionment with traditional investment approaches
  • increased need for specific investment outcomes that certain alts are uniquely positioned to offer 
  • evolution in state-of-the-art of retail portfolio construction 
  • meaningful headroom in large established retail channels
  • accelerating demand in fast growing channels
  • additional growth potential with smaller institutions

 

1. “can” being the operative word here

Where are the Universities with the Largest Endowments?

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43 of the 50 largest university endowments are located in the United States, and only one non-American university -- the King Abdullah University of Science and Technology -- makes it to the top 10. In the UK, however, universities have begun to cotton on to the endowment-as-operating-budget model, and two of its universities, both public, make it into the top 20 (versus 3 public universities from the US). 

Here's the full top 50 university endowments by country, using data from NACUBO and NonProfitCollegesOnline.com:

Want to connect with endowment managers from many of the endowments listed above? Join Trusted Insight today!

University Endowments by State

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This Massachusetts native is happy to report the bay state leads the nation in college endowment size -- the five MA universities in the top 50 come in at $48.96 billion. Texas ($34 billion), California ($32.58 billion), Connecticut ($20.78 billion -- all from Yale), and New York ($18.34 billion) round out the top five. 

Get the full dataset

The Link between Pension Funds and Unprofitable On-Demand Delivery Startups

Last week, Kevin Roose wrote a (typically) sharp piece for New York Magazine entitled “The Problem with Profitless Startups.” This reader believes a better title is: “The problem with Profitless On-Demand Service Startups,” for that genre, and how it affords its below-market pricing, is Roose’s subject.

For those of you who don’t live in a startup hub or are blissfully unaware that you do, an on-demand service startup lets you order something from your phone and get it delivered by a real person in a set timeframe. Eg a maid service, or a fresh-cooked meal, or a bouquet of flowers.

“But didn’t these sorts of services exist before?” you ask. Yes, but A) you couldn’t order them with a click of a (brightly colored, minimal UI) button on your phone, and more importantly but less obviously B) they weren’t, and aren’t, so dang cheap.

How cheap? Roose, in his piece, spotlights a meal delivery service called SpoonRocket, from which he was able to order a steak au poivre and roasted cauliflower for $8. That $8 included delivery and tip and -- though Roose didn’t mention this -- the cost of a free meal to a child in need, whatever that cost is.

The cheapest way for me to replicate Roose’s meal would be to get 6oz of flank steak from my butcher (well, not my butcher, in that I don’t utilize his services much, but the butcher closest to my apartment) and a head of cauliflower. Maybe that would cost less than $8? If the meat was on sale? But assuming I’m using a delivery service, say, Grubhub, a steak frites in San Fran will run me … $26.50, before delivery and tip.

I was curious if this cost difference bore out for the other startups Roose mentioned, and a handful he hadn’t. Let’s take a look:

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 As you can see, 5 of the 7 startups I looked at had prices that were considerably lower than the traditional equivalent.

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This isn’t perfect data. Obviously, there are cheaper steaks to be had on Grubhub, but they come in burritos or indian curries etc. And the cheapest bouquet on BloomtThat had different flowers than the cheapest 1-day one on 1800-Flowers. But they were tulips, and looked way nicer, actually, than the mix of carnations and daises 1800-Flowers had to offer.

The big point Roose made was that startups like Spoonrocket can charge $8 for a steak au poivre delivered to my doorstep because Spoonrocket isn’t really paying for it -- its VCs are. And its VCs aren’t really paying for it either -- their institutional investors are. And his question was: given the fact that these startups’ success hinges, at least in part, on their low prices, and given that these low prices require outside funding to subsidize, are they really the sort of investments VC backed by, say, a public teachers’ pension fund, should be backing?

Here are some of the LPs backing the VCs backing the aforementioned delivery startups:

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All startups, of course, are risky investments, and perhaps the service apps’ pull isn’t price but convenience and pretty UI, in which case they could perhaps survive if they raised prices to the level profitability demands.

(Raising prices didn’t work out for ole H.W., but like, what startup founder even knows who he is these days?)

Get the data