October 27, 2011 in Business, Legal

Anomalator tracks, compares fund managers’ performance

By The Spokesman-Review
 

Fund performances from 2001 to 2004 include an “anomalous” indicator that Bernie Madoff’s returns were unlike any other fund, based on data gathered by V-Indicator.
(Full-size photo)

Like a lot of people, Spokane’s Burton “Bud” Sheppard thinks American investors don’t get enough solid information when making investment decisions in the stock or bond market.

His solution, and the basis of a new company he’s heading, is to develop a tool that can sort through millions of records involving market performance. V-Indicator Analytics LLC, where Sheppard is president, has the technical capacity to sort through gobs of data and track much more than just the performance of stocks or stock families.

His tool – the Anomalator – can track and spot the performances of thousands of individual fund managers, and then use advanced visualization features to show how they are doing relative to each other.

For instance, Sheppard can fire up the Anomalator and show color-coded lines onscreen that track any number of heavyweight fund managers and how they did between various points in time.

In one example, from 2000 to 2004, he tracked Bernard Madoff, the asset fund manager who duped investors of millions of dollars using a Ponzi scheme.

Sheppard’s graphic display shows the results for many other fund managers during the same period. They’re all displayed in jagged, vastly erratic up-and-down lines on the screen.

Madoff’s is generally a steady, slightly upward line.

“There was no way Madoff could have produced that steady line” of fund performance, he said. “It tells you he’s telling people he never lost any money, ever.”

If regulators had his Anomalator software or any other that produced similar numbers, they’d have seen the anomaly, Sheppard said.

Sheppard, a former Massachusetts attorney who moved to Spokane in 2003, launched V-Indicator with the help of researchers at the Pacific Northwest National Laboratory in Richland, managed by Battelle for the Department of Energy.

V-Indicator came about a few years ago after Sheppard met and collaborated with several statisticians, economists and software specialists at Battelle’s Tri-Cities lab. PNNL and Battelle have developed a number of cutting-edge software systems that are used to scoop up billions of pieces of information and render them in graphic displays. One is used to track terror alerts around the world.

In exchange for its development of the Anomalator tool, Sheppard provided Battelle a license fee, a stake in his company and a share of his revenue.

Sheppard has one primary partner in the venture, Christopher George, who has the job of chief technology officer. Other workers are added on an as-needed basis.

The big advantage of the Anomalator, as Sheppard uses it, is its rendering of complex financial data in a clear and easily understood way, said John McIntire, who is a commercialization manager with Battelle in the Tri-Cities. So far V-Indicator Analytics has licensed the product to several dozen financial services companies.

If the tool shows performances and returns in straight line form, it can also display clouds of data, using given moments in time as a universe of all the different fund returns being measured against all others.

That provides a visual display where the majority of funds and their dots form a “milky way” heavy pattern onscreen, which represents the collective similarity of the funds at that given point. But the cloud also has outlier dots above and below the dense line, and those are funds with the best and worst returns, said Sheppard.

Beyond financial transactions, McIntire said he and Sheppard envision the Anomalator being used by health services enterprises and insurance companies to detect unusual and irregular activities.

“We are not looking to develop a version for individuals,” Sheppard said. “The benefit to individuals will come as more financial services companies adopt the tool and see its advantages in helping their investors make more money,” Sheppard said.


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