When it comes to creating alpha, fixed-income managers that stay ahead of rapidly evolving technology will have an advantage over those that remain stuck in the analog world. But how do you assess how well your manager is navigating the changing technological landscape?
It’s critical to know how advanced your manager is, because technology has a direct and increasingly important effect on performance. Managers that have the right tools will do a better job of identifying and capturing opportunities, even in illiquid or volatile markets. And they’ll have more time to focus on the strategic and analytical work that humans are better wired for.
That’s why you’ll want to know where your manager falls on the digital continuum. The following checklist of questions will help you gauge whether your manager has the right technological tools and innovative attitude to succeed in the fixed-income world of the future.
In the last five years, how, specifically, has technology changed the way you do business? What changes are you contemplating for the next five years?
Your asset manager should be able to provide specific examples of how they have improved client outcomes using technology they built or bought. They should also have an explicit technology strategy that anticipates new developments in artificial intelligence, machine learning and fixed-income market conditions.
Can you describe your organization’s culture and attitude toward technology?
An organization that truly values technology should have a track record of integrating it into the investment process, as well as a bottom-up approach to innovation in which the people who encounter everyday problems and inefficiencies are empowered to suggest new technological solutions. Senior management should view fixed-income technology as a top priority.
What problems are your most compelling technology tools solving? What problems do you think technology can solve in the future?
Technology should be used to gain an edge in the marketplace, not just to improve the bottom line. That is, the end goal of integrating technology into the investment process should not be a headcount reduction. Make sure your manager is focused on how technology can help them solve the real-world problems that impede the best client outcomes. If they can’t articulate their current problems or solutions, their strategy may be geared more toward helping themselves than you.
What is your organization’s approach to changing liquidity conditions in the marketplace?
When liquidity is fleeting and scarce, seconds can matter. If firms don’t see liquidity conditions as a problem with a potential technological solution, they’re going to be left out in the cold the next time markets seize up.
Do you see your tools as stand-alone improvements, or as part of a more holistic strategy?
Stand-alone improvements are commendable, but the real value to an investor lies in tools that can “talk” to one another. Now that artificial intelligence and machine learning are upon us, firms should have either digitized all their data into a machine-readable format or have a plan for doing so. This is the first step toward developing a technology suite that is more than the sum of its parts.
How do you think human-machine interaction will evolve in your organization over the next five years?
Too often, managers see technology as an alternative to human intelligence rather than a way to empower it. Firms should have a clear answer as to how machines will empower their existing employees and what new talent they will be looking to hire in the future as their needs evolve.
Name three of your developers.
A sure sign that technology is fully integrated into the investment process? Your manager consults developers so frequently to solve research and investment problems that they know exactly who they are.
In the end, the discussion you have with your asset manager about technology isn’t just about technology. It’s also about how much the manager thinks about the future, how comfortable they are with the idea of radical change and how determined they are to make the kinds of investments that result in long-term success. These characteristics put leading managers far ahead of the rest.