When mutual funds go data-mining

How predictive analysis is making slow but definite inroads into the asset management industry

There is a story about retail behemoth Target getting an angry call from a father, after his teenage daughter received a mailer intended for new mothers. The executive apologized profusely, and then called back again in a few days to say how sorry he was; only to be told that the daughter was indeed pregnant. 

A New York Times story explained that Target’s customer tracking statistical model had analysed her purchasing pattern (such as the personal care products she bought) and identified her pregnancy even before her immediate family. 

Now Indian mutual funds are beginning to analyze all the data they can get their hands on to better understand customer behavior and improve sales; though it is still said to be at a nascent stage.  

So far, its more in the nature of identifying who to target with a tax-saving equity fund, based on whether they have invested in a diversified equity fund. But deeper data analysis amongst mutual funds does seem to be on the way. 

“Hypothetically, a person’s trading pattern can be used to identify his risk appetite, these and other social media information such as who he follows on twitter; can be used to put together a client profile which could help in determining what kind of products are best sold to the person,” said Mukund Mudras, Co-Founder and CEO at finance data analytics company Heckyl Technologies.

“We have been making use of predictive analysis….Data analysis has been picking up now over the last 2-3 years. We use it as a resource for both distributors and customers. The former, we try to keep an eye on trends, in terms of whose assets are growing and whose aren’t and what corrective steps we can help distributors take….Customer behavior can help us identify which products can be pitched to a client. It can also help us identify, amongst existing customers, who can be a potential candidate for additional products,” said A Balasubramanian, Chief Executive Officer for Birla Sun Life Asset Management Company.

A CII - PwC report entitled ‘Indian mutual fund industry: Challenging the status quo, setting the growth path’ report released in 2014 noted the increasing role that big data can play in the asset management space. 

“Fund houses can…leverage advanced analytics and big data collected from structured transactional data from R&Ts and other sources, as well as unstructured data from social media and other platforms to extract meaningful information on investor or distributor behaviour and use this information for more effective targeting of their respective investor groups. Analytic techniques can be used to cross-sell or up-sell products and increase each investor’s stake, among other applications,” said the report. 

A Deloitte Center for Financial Services ‘2015 Mutual Fund Outlook’ report which looked at global trends, mentioned the increasing use of data analytics. It said that predictive analytics can be used to find which competitor products are facing stress, to find out when redemptions are likely and pick out opportunities to gather assets. Fund houses mine data to identify new target markets as well as territories which are yielding rich dividends so that they can allocate more resources there.

“In India It is still at a nascent stage, but will likely play a bigger role in client conversion and cross-selling,” said Jimmy Patel - Chief Executive Officer of Quantum Asset Management Company. 

One chief executive said that there is a lot of catching up to do with e-commerce companies who make use of complex algorithms to identify customer behavior and execute sales. 

“Many fund houses still use distributor names when reaching out to the customers through online promotions like mailers. They want to avoid antagonizing them. But this also means that they have to pay the distributor when the sale happens, even though the fund house has made all the efforts. Many are reluctant to take on the additional cost of data analytics when they have to pay the distributor anyway,” said the person on condition of anonymity.