The role that technology can play in the investment world has been one of the most enduring topics for asset managers in recent times. It is a theme that has evolved as rapidly as the technology itself, with views ranging from how technology can refine investment practices to the assertion that artificial intelligence (“AI”) will ultimately make human input into asset management obsolete.
The latter might seem a bit unrealistic at least in the short term, but the use of technology in information gathering is an increasingly prevalent question. For some time, asset management has had something of an obsession with “big data” – the rapid collection of vast amounts of information from multiple sources in multiple formats – and its application to investment approaches.
The appeal is pretty obvious; by accessing a greater number of “data points”, in principle investors should be able to make better and more sophisticated decisions that can generate greater returns and/or protect against downside exposure. A recent Financial Times focus on this very issue (and the use of data mining by hedge funds) cites the example of sportswear maker Under Armour whose recent disappointing earnings figures may have come as less of a surprise to those investors able to access multiple sources of information via “big data” techniques.
There are risks of course; the same FT article notes the numerous techniques employed to gather information, as well as the proliferation of data suppliers that can be of varying quality. There are also various legal issues that need to be considered with respect to how organisations come by information and what use this is put to.
All this aside however, the “big data” concept poses some interesting questions for asset managers – to what extent can “big data” supplement and enhance investment processes; what are the merits and disadvantages of its use; and perhaps most importantly, what are the expectations from a company’s customer base that “big data” will be used given it is a concept in vogue?
The latter is an interesting consideration given the environment we find ourselves in, regardless of whether you think about it from a positive or negative standpoint. More positively, many people would likely assume greater access to a range of information would allow fund managers to make better decisions and so deliver greater returns, thereby making it more attractive to add to their investments (particularly if the manager in question has a proven track record).
More negatively, the question of how managers access, use and charge for research is a particularly pertinent one given the regulatory pressures the investment industry currently faces – investors might therefore be entitled to ask why managers are not making use of alternative sources of information in their investment processes.
The long and short of this is that fund managers should expect more questions about how they manage money and, in particular, the way they apply data, research and new technologies within their investment processes. Transparency (already a major feature of incoming regulation) will obviously be crucial, but managers will need to go further. Ultimately, the ones able to explain the application of this complex subject clearly and concisely will be those likely to have the most success.