Three key areas where active managers can deploy technology in their front-offices to help achieve a market edge
The prevailing narrative is that active managers are becoming obsolete amidst the seemingly inexorable rise of passive investing. Indeed, this existential threat has grounds. The record-breaking bull run and period of low or negative interest rates have meant managers have struggled to outperform market indices – stock-focused hedge funds on average gained 13.7% last year, while the S&P 500 climbed 29%, according to Hedge Fund Research. Signs active managers are losing their edge have spurred investors to pile vast sums into passive investment vehicles, with assets in US index-based equity mutual funds and ETFs outstripping active stock funds for the first time in August last year.
However, active managers are responding to the overriding pressure to increase returns and realize that the front-office must evolve. It’s becoming ever clearer that deploying technology in this area will be a decisive factor in being able to continue to deliver value to investors.
Algorithms and adoption of automation are nothing new in the hedge fund industry. A Morgan Stanley poll at one of their recent investor events showed that only 13% of firms were not employing or looking to employ machine learning in their investment strategy. Looking at in-flight data, hiring in-house meteorologists and building powerful machine learning models are all part and parcel of how hedge funds are evolving to market pressures.
However, beyond pursuing a more data-led investment strategy, upgrading technology across front office operations can deliver greater efficiencies and unlock new opportunities, helping managers to wring every last drop of alpha out of each investment idea.
In my view, there are three key areas where active managers can deploy technology in their front-offices to help achieve a market edge.
About the author, Ed Gouldstone
Ed Gouldstone is a senior leader in global product strategy and development for Linedata Asset Management. He previously led R&D and earlier was COO for Linedata’s European business with responsibility for all aspects of client delivery, support and strategy.
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