‘Big Data’ Remains Largely Untapped03.13.2015
‘Big Data’ has been a hot topic in investment management for at least a few years, but some argue that still there’s been little headway in harnessing the true potential of the technology.
“There has been no real understanding of the potential use of big data, whereby funds or regulators or investors could actually use techniques to analyze platforms to leverage or utilize big data for their benefit,” said Bijesh Amin, co-founder of Indus Valley Partners, a provider of alternative asset management services. “For the fund, it’s enabling them to lower their cost base. For regulators, it’s using techniques and analytics that understand filings, and for investors it’s using data to become more systematic in their approach to investment management.”
For hedge funds, Big Data offers a means to address an issue that the whole alternative asset management industry is currently facing, namely the widespread push by investors for lower fees.
“This will have a material impact on the profitability of hedge fund managers unless they can either maintain performance to justify two and twenty, offer new funds/fee structures or re-configure their operating models to maintain margins,” said Amin.
It is the latter by which Big Data offers tangible benefits via middle-office ‘outsourcing’ to cloud-based platforms. “Most hedge funds have already moved back offices to fund administrators, but through the cloud there is plenty of scope for a further reduction in operating costs,” Amin said. “Once two or three flagship managers realize the potential of moving their mission-critical post-trade functions to the cloud, there will be wider adoption from the rest of the industry.”
This is distinct, Amin noted, from what quant-based funds have been doing for a number of years: using analytics to discern trends and insight from market data in order to generate alpha or gain an investment edge.
For regulators the opportunity presented by Big Data lies in the scope for analytics to separate the ‘signal from the noise’ out of the terabytes of regulatory filings data they have accumulated over the past few years. Spotting patterns in markets which may trigger systemic risks to the financial system can only be made practical through the use of leading-edge technology and building simulations based on the data collected.
“For regulators, it’s about what to do with the data now that I’ve got it,” Amin said. “I’m worried about systemic risking of financial system, but what does that mean?”
For investors, Big Data offers the opportunity to invest directly with a fund, bypassing sell-side capital introduction desks and wealth management platforms.
“If some hedge fund managers can ETF-ize their performance and build scalable fund platforms to support such products, it is easy to see how investors could theoretically bypass the middle-man and use cloud platforms to plug directly into such offerings based on their individualized asset allocation profile,” Amin said. “Say 30% to an AQR-type mutual fund, 50% to passive index tracker like the SPDR S&P500 and 20% to a listed REIT or BDC.”
Featured image via Dollar Photo Club
Investors are seeking the tax efficiency, trading flexibility and cost benefits of ETFs.
US Department of Labor has allowed pension plan fiduciaries to consider ESG factors.
Goldman Sachs Asset Management agreed to pay a $4m penalty.
FINRA membership marks further momentum in WisdomTree Securities' digital strategy.
The prior administration’s restrictions on retirement plans and ESG were removed.