Global macro investing provides unique uncorrelated return opportunities within a diversified portfolio. However, the key to success is being disciplined and systematic with decision-making. This blog provides a different perspective on current economic and finance issues, changes in the structure of markets and the industry as well as how to be a better disciplined decision-maker.
Thursday, November 19, 2015
Distribution of technology matters in money management
"The future is already here, it is just not very evenly distributed." -William Gibson
There is always a lot of talk about the skill of hedge fund managers when discussing due diligence, but there is not always a close focus on the technology used by managers. Technology includes hardware, software, and new techniques for analysis. There are some who embrace new technology quickly while others adapt slowly. Given the differences in adaptation, technology change will be diffuse. The diffusion may be closed quickly, but it exists and can impact manager performance. The future may already be here, but not for everyone at the same time.
This technology differences is not just the use of computers, but more importantly, the use of software to help harness the large amounts of data associated with finance. There have been significant advances in the visualization of data which can improve analysis. There have been better quantitative techniques for processing data. The method for storing data is just simple but important technology.
The technology of new ideas in finance also is not distributed equally. Older managers may not have been trained or exposured to new research. For example, while the addition of factors to the Fama-French model may be know by a fair number of managers, it is not evenly accepted by all managers. The ideas behind smart beta are years old but only now being widely accepted. There is a delay between what is found research and taught in the classroom and what is used in practice.
The use of trading algorithms for better execution is also not evenly distributed. The level of sophisticated will vary and the best users of technology may not be the largest managers who have legacy thinking and systems that have to be adjusted and adapted.
Let's just say that the due diligence of skill analysis should also account for technology and research differences and how managers access and learn new ideas and adapt them to their businesses.