February 2020: The Rise of Investment Data

Posted by Anton Murray Consulting on . Posted in 2020

Over the past few years we have seen an increasing focus on investment data analytics from asset owners and managers. This investment spans hiring, with major firms increasingly seeking out data specialists, quant analysts and middle office staff with an analytics focus, as well as direct investment in software and datasets. Bloomberg forecasts that spending on alternate datasets such as these will reach $1.7 billion in 2020. The focus on investment data is gaining prominence in strategy too, with McKinsey offering an insight to explore the advance in analytics in asset management.

Increasing interaction between performance, risk, analytics and investment teams has led to the creation of new investment functions, and new ideas of how traditional asset management and allocation takes place. New areas of innovative such as artificial intelligence and machine learning have been particularly impactful on investment analysts tasked with quickly assessing and digesting a huge volume of information. Effectively capturing and synthesising investment data into a form that integrates neatly into existing investment or asset allocation strategy frees up time for more in depth, informed analysis, creating a substantial competitive advantage for investment firms that are able to harness the power of big data analysis. Further, internal data analysis is also allowing asset managers to structure their teams more effectively, assess their client base at a granular level and mitigate bias in investment decisions. Now it is de rigueur for investment firms to use increasingly advanced analysis of investment datasets, such as QMA​, a US based investment quant firm, who have developed methods that allow them to effectively assess the ESG aspects of companies that do not disclose their practices, a game changer in emerging market equities. Furthermore we are noticing a heightened interest from asset owners to analyse data more directly to potentially replicate investment performance within their in-house investment teams.

With this increased investment in data comes another growth area for the industry: data governance. We have seen a noticeable increase in data governance hires, from the creation of executive positions such as Chief Data Officers, to the growth of data governance teams within both risk and middle office functions.

The emergence of data as a major influence in asset management has clearly changed the landscape on a micro level, but it is also leading to macro changes and creating new opportunities for businesses to diversify. Notably, Future Fund and BNP Paribas have established a data service arrangement to jointly develop new products, creating tailored solutions for the sovereign wealth fund. The rise of investment data has resulted in increased influence from vendors and service providers, enabling the analysis of investment data. Firms such as BlackRock have seen huge success with Aladdin, with other prominent players including FactSet, Ortec and GoldenSource, with traditional data providers such as Bloomberg hustling to remain competitive and relevant.

The rise of investment data will be a space to watch, and we look forward to supporting our clients and candidates in this rapidly evolving growth area within asset management.

January 2020: ETFs – Growing by the Trillions

Posted by Anton Murray Consulting on . Posted in 2020

ETFs are continuing their surge forward and are now a multi-trillion dollar market. Their simplicity has added to their popularity, particularly amongst retail investors looking to diversify their portfolios or getting exposure to markets and asset classes that previously proved hard to access.

Much of their popularity can also be associated with the cost and barriers to investment of managed funds, as well as the general underperformance of active asset managers. ETFs generally provide investors with exposure to track market indexes or a general theme, asset class or region. The number of millennials using ETFs has increased from 19 per cent to 29 per cent since 2013. But they are not without their critics with Michael Burry of The Big Short fame comparing them to the GFC bubble of asset backed CDOs.

Further regulatory scrutiny has arisen around active ETFs where fund managers aim to outperform benchmarks as opposed to replicating their performance. There is already tension around the relationship between the market price and net asset value (NAV) of ETFs given that they are traded on market but are valued based on the underlying NAV. Index tracking ETFs employ external market makers to maintain the price and market for the ETF. ASIC has recently blocked the addition of new active ETFs onto the ASX as it reviews the situation due to the fact that active ETFs internalise the market-making process and do not disclose their full underlying portfolio holdings out of fear of revealing their portfolio intellectual property.

With the regulatory review ongoing, it remains uncertain how exactly the active ETF space will be affected. Active ETF providers are already required to post delayed portfolio holdings, however there is the potential for providers using internal market-making practices to expand spreads and thus increase the size of performance fees. This mismatch in fund manager incentive and lack of transparency provides the potential for abuse. This issue is all the more important with retail investors using ETFs at higher rates and with easier access, the potential for more uninformed investors to lose out if something goes awry has increased. ETF providers are also generally active marketers and educators, and this will continue to be important in their growing size in the investment industry as well as in the eyes of the regulators.

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