Scoping the tech revolution: The future of fund selection
That information technology is the life blood of the financial services sector is no secret. The capital markets would not function without IT, nor increasingly would investors be able to access services that are going online.
There are myriad examples of the value of IT to the industry. Last year a local paper in Buffalo, New York State, reported that BlackRock was going to build a new data centre in nearby Amherst for a reported $80m, following approval of $9.2m in tax
breaks by the relevant local development agency.
Existing tools as used by fund selectors can also be somewhat valued: one blog on the CFA Institute website published early last year suggested that there were some “315,000 subscribers each paying in excess of $20,000/year” for their Bloomberg platform, while the number of subscribers to Thomson Reuters Eikon was put at 190,000.
These price levels naturally draw in competitors – such as Infront and ChartIQ – for those who do not need the full power of a physical terminal.
But there are other issues to consider.
One study by marketing agency Dog Digital found that marketing professionals in financial services struggle to communicate the importance of technology and digital marketing to senior management and company boards.
Thus, while the industry keeps evolving and automated labour seems to be increasingly more an option for companies, many believe there is still a long way to go.
The Generation Y effect
Philip Kalus, managing partner, accelerando associates, the intelligence provider for fund distribution, is one of them.
Working with fund managers and fund selectors across Europe, Kalus notes that selectors have become acquainted with the use of technology on the operational side of their job, but the potential future value lies in tech based communication and information flow between the fund manager and the fund buyer.
broader and deeper use of technology and media compared to a couple of years ago, but it is very early stage in comparison to some other industries. Fund selector due diligence processes have not changed very much yet. However, they will. Technology and specialist B2B social media based factors will become very important in fund and fund manager selection,” he says.
While it tends to present itself as a very modern sector, the asset management industry lags considerably behind many others when it comes to the use of technology, Kalus argues.
Many asset managers even fail to transmit the most essential information such as factsheets in a timely and easy-to-find manner, while the real challenges go beyond this.
“We already see Generation Y research and buying behaviour moving into the corporate world. Just think of the importance of social media in corporate staffing, travel or event booking for example. We will see this in fund selection as well,” he adds.
Detlef Glow, head of Lipper EMEA Research, Thomson Reuters also uses technology every day as part of his job to screen funds in a fully automated way, for example to calculate the monthly Lipper Leaders rating. He sees a future full of positive changes.
“The use of technology will increase over time, as it helps to increase efficiency in all parts of the investment industry.
“With regards to this, we will see a lot of changes over the next few years in all parts of technology – faster processors and networks will enable asset managers to run new, maybe better, models and react even faster on short term trends – think about flash trading, which was enabled by fast processors and high speed data networks,” he says.
Another reason why technology is destined to be a key theme of the investment universe going forward is, according to Glow, the increasing push of regulatory changes in the industry. New requirements for transparency, documentation or steps
within the process of advising a client that will force asset managers and advisers to use new technologies.
Mark Hawtin, investment director at GAM and manager of both long only and long/short technology portfolios, says he uses technology in order to maintain monitoring of company reports, and arrange company meetings. Hawtin suggests that one possible development is technology that facilitates studies of how portfolio managers’ behaviour and environment correlates to the portfolio performance – for example seeking to find a relationship between performance and how much sleeep a portfolio manager gets.