Click here to oust the board— Inside the A.I. startup
that’s transforming activist investing
2020 12:00 PM EST
Balázs Boros and Grant Fuller
(right), are the co-founders of Irithmics, a British startup
that's building an AI-powered tool that could make virtually any
investor an activist investor.
Last year, Coast Capital was locked in a bruising trans-Atlantic
battle with FirstGroup—the British operator of Greyhound buses as well
as a fleet of 42,500 yellow school buses in the U.S. and Canada—
before finally scoring a series of decisive blows in its activist
In May, the U.S. hedge fund, which holds a 10% stake in FirstGroup,
persuaded the transportation firm to put its Greyhound bus business up
for sale—a principal demand. Two months later, it forced out
FirstGroup's chairman. By the end of year, First Group agreed to
appoint advisors to figure out whether or not to divest the rest of
its North American business.
From his office in southwest England, Grant Fuller had been watching
the back-and-forth blows with great interest. Fuller wasn't involved
in the Coast Capital-FirstGroup battle, but he saw the ordeal as an
It takes equal measures of persuasion, tact and good timing to win
over fellow outsiders in getting a board to abruptly change direction.
And Coast Capital deftly exhibited all three in its fight, observed
Fuller, a fintech entrepreneur.
Fuller is no ordinary observer of proxy battles. His company,
Irithmics, has built a high-tech tool that he believes will help
investors to replicate many of the skills seasoned activist investors
deploy to win over their targets.
In recent years, artificial intelligence has transformed much of Big
Finance, supercharging, for example, firms' ability to manage risk,
advise clients and improve trading returns. Now A.I. promises to
automate and democratize a part of big finance that was off-limits to
all but the most powerful corporate raiders: activist investing.
Coast Capital “knew exactly which buttons to push to disrupt those
investors. What we have done at Irithmics is wrap that up into a
product. Now everybody can do that,” Fuller, Irithmics CEO, said
during a visit by Fortune to
the company’s base at a former glove factory in the attractive
Wiltshire village of Holt, two and a half hours’ drive west of London.
Neither Coast Capital nor FirstGroup are clients of Irithmics, but the
company tracked the activist skirmish because it served as a useful
“live” test case of the technology the British startup was developing.
Irithmics’ A.I. tool revealed, for example, that Coast Capital’s
blistering attacks—delivered in various public statements and press
interviews—on FirstGroup, were hitting home with investors as early as
mid-2019. An Irithmics dashboard of sorts detailed the precise
inflection points in which investors grew negatively disposed to news
about FirstGroup, those moments when the shares were more vulnerable
The age of activist investing
This month, Irithmics will pull the curtain off this new tool, called
“Investor Messaging” app. The tool works both ways. Activist investors
can use it in their tussles with a public company. A company,
meanwhile, can use it to spot where it's most vulnerable to an
Activist investing, in which an influential investor or group with a
large holding in a certain company uses that sway to force the company
to make big changes, is on the rise, particularly in the United
States, Europe, and Japan.
News that renowned activist investors like Carl Icahn, Daniel Loeb or
Paul Singer’s hedge funds, have bought a significant stake in a
company can strike fear into the target’s management ranks and board.
While activist investors can be a force for good, spotting
inefficiencies and raising shareholder returns, companies often see
them as meddlers more interested in short-term gain.
Often, activists want to appoint their own board members or oust the
CEO. These fights can leave a company vulnerable to takeover.
No matter what side of the fence you stand on, it’s hard to quibble
with the results activist investors get. Nearly one in four (23%)
companies targeted by activists were ultimately acquired by another
Another report by
the investment bank Lazard found that in 122 cases from a year ago,
activist investors got their people (or themselves) board seats.
The leading activist investors in 2019 were the familiar names: U.S.
hedge funds Elliott Management and Starboard Value. The latter pulled
off one of last year’s highest-profile campaigns, pushing for eBay to
sell non-core assets such as ticketing unit StubHub and its classified
ads business. EBay’s CEO stepped down in September, and the company
announced two months later it would sell StubHub for
around $4 billion. In the case of FirstGroup, shares are up roughly
15% since the firm sold off its Greyhound bus business.
With concerns over climate change and board
and center, we are living in the age of activist investing. It’s also
the age of fintechs. And so it’s little wonder that algorithms are
being built to help the most disruptive shareholders gain an
Irithmic’s “Investor Messaging” tool draws on 1.5 terabytes of
data from publicly available sources such as regulatory filings, asset
managers’ disclosures, brokers’ notes, shareholder registers and news
headlines to compile a detailed picture of the trading habits of the
world’s 250,000 institutional investors, and their
likely stance towards a particular company. For example, an oil
company under pressure by activists to come clean about its progress
towards Paris climate accord targets—as happened
the case of Royal Dutch Shell, BP and Norway's Equinor—could use the
A.I. tool to determine just how widely held these views were among
fellow shareholders, or how susceptible they were to falling under the
"A very one-sided fight"
Fuller, 47, studied chemistry to PhD level at the University of St.
Andrews in Scotland before taking part in research at Cambridge
University on applying neural networks to public health and
He then moved into finance, working for the Bank of Tokyo-Mitsubishi
and RiskMetrics before joining Bloomberg to help build and develop its
AIM (alternative investment market) portfolio and risk management
platform for hedge funds across North America, Europe, Asia and
Fuller caught the startup bug in 2012 when he co-founded Irithmics
with Balázs Boros, 40, a Hungarian-born computer scientist. For a
startup, Irithmics has deep ties to London’s financial center. Since
2018, the company has furnished London Stock Exchange listed companies
with data on investor sentiment generated by its A.I. algorithms.
Members of the Irithmics senior
team—Grant Fuller (left), Balázs Boros (center) and Haakon Thor
Brunstad—in the Irithmics office in Holt, England.
The Irithmics’ origin story is anything but conventional. In 2011,
Fuller came across an article in the scientific journal Nature by
Andrew Haldane, then executive director for financial stability at the
Bank of England, and Robert May, professor of zoology at Oxford
University. Haldane and May suggested that many of the systemic
failures that had occurred during the global financial crisis could be
traced in much the same way as epidemiologists mapping the spread of
Fuller and Boros set about building such a model, one that could
measure and track investor sentiment. Hedge fund investors caught wind
of it, and bankrolled Fuller and Boros for several years as they
applied the technology to understand “not what securities a hedge fund
owned, but why they had bought them. As soon as you start
understanding ‘why?’, you can begin to map this back into what is the
strategy of the fund,” Fuller said.
The “Investor Messaging” tool is its latest effort, one that generated
heated internal debate. The question of whether to market the new tool
to both activist investors and to target companies wasn't an easy one
to resolve at first. In the end, they decided if they didn’t offer it
to everyone, they’d be open to criticisms of weaponizing data to give
one side an advantage.
“If only the activists have it, it is going to be a very one-sided
fight,” Fuller said.
It helps the sales team, of course, to market a product to both
corporate IR teams and to
Irithmics’ system covers 16,000 listed companies—ranging from Apple to
Royal Dutch Shell to Volkswagen—across North America, Europe and
Australia. That amounts to roughly 1 million rows of fresh data—or 1.5
Fuller gave Fortune a
sneak peek in early January when it was being beta-tested by
prospective users. The app offers corporate investors a detailed view
of a company’s performance broken up into 30 different metrics
including financial performance, business complexity, executive pay
and its ESG (Environmental, Social, and Governance) track record.
Irithmics’ algorithms rely on deep learning, machine learning and
natural language processing to review, for example, everything that’s
written about the company to grade the management team in specific
areas such as corporate governance or business structure. The tool
calculates whether those grades might ultimately sway investors to buy
up more shares or bail on the company.
Dots on a graph highlight the specific dates where the views and
expectations of investors began to measurably change on these issues.
Elsewhere, the app indicates how sensitive a particular stock is to
breaking news about the company or its sector, and whether that news
flow could trigger short-selling.
Taken together, the tool allows activist investors to challenge
management strategy. It does so by homing in on the target company’s
biggest vulnerabilities—more to the point, which issues might trigger
a shareholder revolt. It might be the company’s overly complex
business structure, or a chronically poor performing unit in which the
executive team has more faith in than investors.
Conversely, a company’s management might use the same tool to win over
investors on difficult issues. If it has precise data, for example,
that shareholders are more interested in growth, it can focus on this
area in its communications to the market. Likewise, with a measure of
investor concern about environmental exposure, it can adjust
Activist investors have long employed big data, a team of quants and
high-speed computers to find vulnerable boards to bully and cajole
into changing strategy. A.I. appears set to obliterate this high-tech
advantage, and some predict that could dramatically change the
dynamics of these high-stakes campaigns.
If an activist investor says “we’ve got the statistics on your
company—it says X, Y, Z—maybe this will be a stepping stone to
corporates being more receptive, more engaging, rather than trying to
constantly defend themselves,” says Peter Hamid, a senior consultant
with financial PR firm Maitland/AMO. “A lot of the time activist
investors are only trying to do one thing, which is to try to add
value to what they initially bought.” Hamid has begun using Irithmics’
data in his work advising listed companies on how to present their
story to investors.
Fuller said the new product is getting plenty of interest from
activist investors, but he did not think it would drive a surge in
activist challenges to companies.
“A surge of activist activity is happening anyway, just look at the
numbers,” Fuller says. “What this will do is make it easier for people
to understand how to criticize companies. But the reverse is true: the
companies themselves now have a mechanism to defend themselves.”
The tool is aimed at institutional investors, activist investors and
companies and is not designed for retail or day traders. The company
does not disclose the price but says it costs less than a human
"What on earth are you going to make with that?"
Fuller admits to spending a lot of time trying to figure out what a
single investment decision by a complete stranger reveals about her
larger investment strategy. Away from the office, he’s that person who
looks into your grocery basket to guess what you’re planning for
“For me, when you walk around the supermarket and you have a little
peep into someone’s shopping cart, it’s always curious … You could
find Greek yoghurt and cucumber and you think ‘Ah, you’re making
tzatziki’ or something. Other times you think ‘What on earth are you
going to make with that?’ For me, that is a really interesting
exercise,” he admits.
Fuller is inspired by economist John Maynard Keynes’s dictum that
“successful investing is anticipating the anticipations of others.”
“It turns out every company which Irithmics tracks has a unique
fingerprint of how their investors will respond when you give them a
particular pieces of news,” he says. “No two are the same, and they
evolve over time.”
Back in the office, Fuller and his small team are looking at adding
data on foreign exchange and commodities to the new product. Such an
addition would shed light on how capital moves between countries and
asset classes on a daily basis.
As for its own finances, Irithmics is not pondering an IPO—for now.
Fuller is coy about the company’s funding beyond saying it’s backed by
a Dutch private investment firm.
But there is a type of road show in the works.
Later this month, Fuller and Boros are heading to Australia, home to a
host of companies that are particularly vulnerable to activist
pressure over environmental issues. There they’re scheduled to meet
with listed mining companies as well as hedge funds and other asset
managers to demonstrate the new activist product.
Some of the firms on the calendar requested the visit, Fuller insists.
“There is real interest in this."
After that, a more arduous journey awaits. Fuller and Boros plan to
move the Irithmics operations out of Holt and back to London—to be
closer to developers, prospective clients and the city's thriving
© 2019 Fortune Media IP