Italy's MDOTM: Exploiting market inefficiencies through AI and quantitative finance

Eugenia Jiménez
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Tommaso Migliore, MDOTM (right, pictured with co-founder Federico Mazzorin)
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Tommaso Migliore, MDOTM (right, pictured with co-founder Federico Mazzorin)

MDOTM, the Italian subadvisor that develops AI-driven strategies and quantitative models for institutional investors, is eyeing an international scale-up after a first funding round raised €2m.

MDOTM was born in 2015, when childhood friends Tommaso Migliore and Federico Mazzorin - graduated in finance and physics respectively- , co-founded the fintech start-up in London after two years working on the creation of their first quantitative model.

In 2013, Migliore, at that time professional ice hockey player, was attending a university lecture on the use of statistics and quantitative models to invest in the markets.

What makes us different is our scientific approach and the flexibility and adaptability of our proprietary technology.”
That same day he called Mazzorin, a physicist with strong coding and statistical skills, who embraced the idea of setting up their own start-up.
They then started developing what would be the first quantitative model of MDOTM, an equity strategy investing in developed markets.

Migliore says: "Our first algorithm was an equity strategy investing in developed markets. We did it with our money.

"After creating it, and studying how it would have performed in the past, we started investing on the market with our savings with great results."

INTERNATIONAL EXPANSION

In 2015, after some years of hard work and perseverance, MDOTM opened an office in London and then found their first client, an institutional investor based in London with offices in Switzerland, that wanted to try their model and fed the entrepreneurs with €1m.   

"During those two years, we started getting some revenues and at the end of 2017, we were selected by Google to join their Google for Entrepreneurs programme, a worldwide acceleration scheme for start-ups," says Migliore.

From a start-up struggling to reach out institutional investors, MDOTM has evolved into the fully regulated investment advisory firm it is now. It offers AI-driven investment strategies to banks, asset managers, insurance companies and family offices worldwide.  

MDOTM's team is made up of around twenty people, who are scattered across London, Milan, and Zurich. Reflecting the firm's approach - which is rooted in science - the team is primarily composed of researchers and analysts with backgrounds ranging from finance and statistics, to computer science and structure of matter physics.

Ten more people from the MDOTM Lab support the team from outside.

INSIDE THE LABORATORY

The MDOTM Lab is an open space for PhD students and researchers studying a set of unique topics in quantitative investing, artificial intelligence and behavioural finance.

It was launched at the beginning of October resulting from various partnerships between the fintech company and different universities, including the Faculty of Banking, Finance and Insurance at the Catholic University of Milan.

According to Migliore, this lab aims at helping the company to identify talented researchers in these specific fields while enabling researchers to work on a real business proposition.

 MDOTM'S APPROACH

Today's investment world is becoming increasingly complex and competitive, so firmly believes MDOTM's CEO. He adds that to stay competitive in such complex market while responding to the new market regulations, banks and asset managers are seeking help from specialists (like them) for their financial products.

He added: "All the institutional investors are focusing on private investors' experience leaving aside the growing complexity of financial markets."

The company's research team starts by finding and studying market anomalies - which are often explained by behavioural finance - and then develops deep neural networks and decision-making algorithms to model and exploit these inefficiencies.

Artificial Intelligence algorithms analyse different asset classes with specific models for single-stock equity investing and multi-asset class allocation.

"We believe that today the world of investments has become a tech challenge, the internet has democratised access to traditional information and levelled out the asymmetries among the market players.

"The scientific method and state-of-the-art technology are the only way to extract significant information signals from the background noise of the markets - our algorithms analyse tens of millions of data points every month."

MDOTM collects and cleans the huge volume of noisy market data produced every day. Then, by using artificial intelligence, machine learning and advanced statistical techniques, it analyses these large datasets, train their algorithms and develop actionable investment strategies that exploit known market inefficiencies.

Thus far the company has developed four investment methodologies, also known as quantitative solutions or engines.

"Each of them can be customized to the specific requirement of a client," explains Migliore.

In order to decide the most efficient portfolio for each institutional investor, the subadvisor works closely with its clients, providing them with their systematic models that support them in specific investment areas on which technology can play a key role.  

Migliore says: "We do customised work for institutional investors so depending on the company's goals, the risk-return profile and other characteristics might change.

"Our models analyse the market scenario and then based on the forecasts we periodically provide optimal portfolios to our institutional clients.

"What makes us different is our scientific approach and the flexibility and adaptability of our proprietary technology."

CLIENTS' PROFILE

Institutional investors of all types use MDOTM's models in their investment decision process within their financial product offering, for proprietary trading, or for managed accounts.

Although the Italian subadvisor mostly targets banks, wealth and asset managers, is now expanding its boundaries towards the insurance sector.

According to Migliore, insurance companies are increasingly becoming attractive clients for them given these firms are upgrading their investment products and segregated mandates.

Each type of investor will have a customised portfolio according to its investment needs and goals.

MDOTM currently offers AI-driven investment solutions to 15 clients from the UK, Switzerland, Italy and Luxembourg.

The firm's CEO unveiled that 20 more institutional clients are in the pipeline.

LOOKING AHEAD

The company announced at the beginning of October it had raised €2m from the closure of its first funding round from a combination of institutional and private investors to finance its international scale-up.

"Last year we raised €2m to allow us to be seen by companies as a solid and stable partner to grow with," says Migliore.

While expanding its clients network is the primary goal of the company, its ultimate objective is to further scale up internationally.  

Spain, Germany and the US are some of the countries that Migliore eyes with interest.

Eugenia Jiménez
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Eugenia Jiménez

Eugenia Jiménez speaks Spanish and is Iberia Correspondent for Investment Europe covering Spain & Portugal, as well as Italy.