Why are hedge fund groups turning to fintech alternatives for investment?

Online real estate investment platform AlphaFlow recently raised $4.1 million in a seed funding round led by Steve Cohen’s Point72 Ventures and Resolute Ventures. The most intriguing aspect of the announcement is an emerging narrative where hedge fund groups are increasingly turning to fintech or alternative investments.

The firm has built a reputation for being the first and fastest-growing automated real estate investment management service. But, its the adoption of data, analytics, and technology to create broadly diversified, passive income-producing portfolios that could deliver the game changer the industry has been searching for.

News of a funding round led by Steve Cohen who is seen by many as the king of hedge funds should be enough to grab the attention of analysts and experts. The latest investment will also enable the company to increase its focus on data science and engineering to enhance the development of its analytics suite and investment algorithms.

We are providing investors and financial advisors with the resources they need to diversify their portfolios with real estate through cutting-edge technology and data analytics. AlphaFlow, CEO, Ray Sturm.

Fascinated by how advances in technology are guiding even cautious traditionalists in the finance industry towards a new age of opportunity. I asked AlphaFlow, CEO, Ray Sturm for his insights on how fintech is finally living up to its promise.

NH: Why are hedge fund groups turning to fintech/alternatives for investment?

RS: Fintech has opened up a number of new investment opportunities, primarily through a marketplace model. Many of these asset classes previously weren’t easily accessible at scale, which led to hedge fund interest when fintech changed that. AlphaFlow takes the next step and makes these investments consumable to institutional investors by homogenizing an asset class that is otherwise fragmented and bespoke.

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NH: Why is it significant that you were able to secure investors like Point72 and Social Capital?

RS: Building a fintech company that truly changes the investment world requires you to both harness technology and leverage the capital markets. With that tremendous challenge in mind, it’s hard to have partners much better than Point72 and Social Capital. When they underwrite your business model and decide to invest, that’s not only great validation but also a chance to work with people who will make every piece of your business better.

NH: Can we expect to see more hedge fund investors turning to alternative investment in the future? Is this a new pattern?

RS: Hedge funds are ultimately built to find returns, either in traditional markets or elsewhere. Their challenge is the ability to invest in an asset class at scale, which sometimes limits their ability to participate in alternative investments. As fintech continues to consolidate traditionally fragmented asset classes, either through marketplace or asset management models, I feel we’ll see more hedge fund and institutional participation.

After speaking with Sturm, it quickly became clear to me that there is a significant change on the horizon. AlphaFlow’s latest seed round funding feels like the beginning for a new era where I suspect they will continue to innovate and make advancements in the investment industry.

When J.P. Morgan wants to hire PhDs who can master machine learning, it seems that FinTech is finally becoming serious business. But how accurate investment algorithms will be is still anyone’s guess.