The global risk analysis used by big banks, hedge funds, and governments to inform their decision-making around everything from foreign currency investment to foreign aid is getting the machine learning treatment with the launch of the new startup GeoQuant.
In the months since the company launched its service, GeoQuant has accurately predicted increasing political stability in Italy and Mexico before a corresponding rise in the value of those countries’ capital markets and a collapse in political stability in Brazil before markets fell in that country, according to chief executive Mark Rosenberg.
“Large asset managers and large corporations increasingly recognize that political risk is a growing factor in this investment climate,” says Rosenberg.
The former head of product development at the global risk consulting firm, The Eurasia Group, Rosenberg had long wanted to come up with a simpler measurement tool for gauging political risk, but felt it would have eroded much of the value in the bespoke reports that companies like the Eurasia Group rely on for income.
Like many entrepreneurs before him, Rosenberg thought the process could be automated with a bit of technology.
Though it’s hard to quantify the global market for risk analysis, Rosenberg puts its current value at roughly $8 billion — which includes crisis management services (not nearly enough to build a venture capital investable business around). But Rosenberg also said that the size is capped by the bespoke nature of the services on offer. He views his business as cents on the dollar of the roughly $2 trillion in global foreign direct investment that happens annually.
GeoQuant hoovers up all kinds of data to make its risk assessments. The company pulls from traditional country data from institutions like banks and non-governmental organizations (what Rosenberg calls the structured data). The rest is information from social networks in the country and high frequency opinion polls.
All of that data (roughly 250 risk variables) are fed into the company’s software to come up with a real-time score for political risk in a country.
The company is backed by a $4 million seed investment from Aleph VC and XL Innovate. GeoQuant sells its data and analysis tools to Bloomberg and went live with its initial service on the terminals in June.
Eventually, Rosenberg said the company will have a software as a service platform that will deliver political and country risk assessments in real time through a customizable dashboard.