With Bill Stephenson, Director of Global Trading Strategy, Franklin Templeton
How technology is changing traditional operations at asset managers:
Innovation will disrupt pretty much every industry over the next five to 10 years, and those that embrace change and different ways of thinking are most likely to be part of the next generation of winners. Technology is certainly at the center of innovation across industries, and the asset management industry will be no different. Many disruptors don’t even view themselves in the same industry as their supposed competitors. For example Uber, Tesla, and Airbnb consider themselves technology companies and approach traditional business problems from a completely different angle. The attendees at the Franklin Templeton AIR Summit were looking for that angle which will differentiate them from their competitors (some of whom were also in attendance), especially in the highly competitive arena of active portfolio management, which today is a $16 trillion asset business in the US alone. There is no question a ‘technology’ company will look for ways to disrupt our business – we are already seeing pockets of this in the financial adviser space with so-called ‘robo-advisers’ gathering billions of dollars in assets and providing highly scalable personal investment advice. As Dan Kaufman said as part of his hour-long introduction to the innovative work at DARPA; don’t be someone with a vested interest in thinking about the world the way you always have. In his example, that is why Amazon was able to disrupt the publishing business.
With many lines beginning to be become blurred within investment management, ie active vs. passive, trader vs. portfolio manager, alpha vs. beta, etc., strategic leaders are becoming more creative in how they think about the ways they add value to their domain and are driving more collaboration across different roles in the investment process. Certainly within trading, we saw the advent of algorithms 15 years ago, and now we are seeing traditional long-only trading and investment teams comprised of Phd caliber quants that are scouring social media data, satellite images, and other unique public data sets. This analysis is being leveraged throughout the entire investment process. Firms are becoming proficient in automation, machine learning, and other quantitative techniques that make their processes more predictable and scalable. Even portfolio managers are getting in the game by utilizing sophisticated tools to measure and understand their biases in their own decision making process. We have highlighted several of these vendors at our 2014 and 2015 events as the behavioral side of our business can be misunderstood – and hacking it can lead to a significant competitive advantage.
So, there is this symbiosis developing between technology and humans that will drive our industry to new heights and all innovation in general. Those that don’t shy away from innovation, change, and collaboration will ultimately generate new kinds of alpha and expand the active asset management industry. We hope the AIR Summit can be one of those events that can continue to get industry participants to re-think their process and how they can leverage technology solutions that will keep them competitive.
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