Innovate or Be Left Behind03.28.2018
The following was contributed by Chris Mackey, the CEO of MackeyRMS.
With Q1 coming to a close, 2018 is already shaping into a big year for innovation in asset management technology development. Advancements in automation and artificial intelligence are moving the productivity dial off the charts, the volatile regulatory environment has inspired the creation of valuable transparency tools that empower asset managers to remain compliant regardless of the shifting tides, and cloud-based platforms are becoming standard. In line with the digital shift, cybersecurity remains a top priority for organizations.
Each of these trends is impacting the overall industry in lasting ways. Below we explore the trends in greater depth, with a particular emphasis on their wider implications for hedge fund and asset management firms:
Advanced Automation and Artificial Intelligence
AI is introducing heightened levels of sophistication to research and data mining, and supercharged software automation capabilities are rapidly enhancing efficiencies across the investment management industry. As AI and advanced automation become more prevalent in the asset management workplace, the day-to-day tasks of asset managers are evolving. Low-level analysis and more terrestrial tasks are taken care of in the background by automatic AI technological systems and processes, freeing up asset managers for other initiatives.
Additionally, AI has the ability to analyze usage patterns, data metrics, content, and keywords. This empowers teams to not only retrieve specific content on demand, but to also discover relevant related data and documents to consider while formulating investment strategies — a game-changing tool for large research teams producing swaths of analysis. And, as an added bonus, systemizing certain facets of investment strategy could ultimately lead to better returns as the decision-making process is revamped, revitalized, and streamlined for success.
The rapidly evolving regulatory environment has provided a catalyst for increased transparency within hedge fund and asset management firms. The pressure is on for firms to gain comprehensive control over their data in order to remain compliant — and to choose a system that is nimble enough to evolve as regulations change. The silver lining is that technology has emerged to address the arduous task of curating and analyzing these large pools of data, making what would have otherwise been a sizeable cost a much more manageable line item expense. As a result, more and more asset managers are modernizing and mobilizing their formalized process, creating fail-proof mechanisms for generating institutional memory. For example, effective asset management technology platforms can track analyst recommendations for not only consumption by portfolio managers and other team members but also for analyst evaluation, compensation, and compliance reporting.
Cloud-Based Platforms Are King
Cloud-based asset management technology platforms are equipping firms with a vast range of conveniences and system improvements, including the aforementioned greater mobility and heightened capabilities for data security. An increasing number of organizations are recognizing the benefits of cloud computing and moving to the cloud — often buying the SaaS rather than building their own platforms. For many firms, the reason behind relying on a partner to supply the technology is twofold:
- The SaaS model allows them to stay ahead of further advancements in virtualization and to better scale technical infrastructure without having to become experts in technology themselves.
- Outsourcing the service also frees up their own IT resources for necessary internal projects.
If it sounds like a lot is changing in the world of investment management, it is. Each of these trends takes a part of “the way we do things” and flips it on its head, but that’s a good thing. The industry has been ripe for innovation for nearly a decade. The reality that these trends are prevalent across the board — even among the more traditional firms — signals that this year might just be a tipping point for the industry in terms of finally catching up with the times.
As asset managers acquire the technology necessary to remain competitive en masse, the number of firms modernizing their systems and processes will create a snowball effect. And, simply put, those who fail to innovate will be left behind.