Asset management has always been a difficult practice to analyse. On the one hand, most of us tend to believe that high-end fund managers and professional traders are privy to information and analysis techniques that bring about a certain level of success or accuracy. On the other, it is also argued not infrequently that professional asset managers are overvalued. In years past, a prominent economist from Princeton University even famously compared money managers to “a blindfolded monkey throwing darts to pick stocks.”
Over time though, improved technological practices have brought about more advantages for many in the asset management business. This still does not mean that the biggest financial firms or fund managers have means of automatically generating income or ensuring portfolio success. But the advent of big data has led to more technologically informed trading. And beyond simply providing a more comprehensive picture of the market to inform trades and investments, there are various ways in which it can affect the asset management business.
1 - Expanding Expertise
Thanks in large part to the growth of online educational institutions, there are more and more college graduates and professionals who are going back to school specifically to pursue opportunities in data and analysis. And that doesn’t only mean that financial firms have to hire those pursuing higher education in fields like economics. Many who are working toward online degrees are studying computer science with a focus on data. Maryville University’s assessment of business administration degrees notes that they now lead to careers in financial analysis and data research as well. The bottom line is, there are a lot of students acquiring expertise in data analytics with respect to multiple specific disciplines. Many of them can be productive hires for asset managers, ultimately allowing these mangers to expand their talent pools and build up better operations.
2 - Narrowing Investment Focus
Data enabling asset managers to expand their expertise through growing talent pools can have a major impact on success, in that it can make it easier to handle more accounts. But there are also perks of data use with regard to the direct management of individual accounts. Notably, a lot of asset managers struggle to narrow down their focus in the early going. As a Traders Magazine post on asset managers put it, a lot of professionals in this position invest heavily at first, and then narrow things down — to “focus on areas of success while jettisoning losing propositions.” This is a responsible practice, but one that’s made much easier when conducted through the lens of data analysis. Data can help reveal those “losing propositions” quite quickly, enabling asset managers to narrow their focus in efficient and profitable ways.
3 - Enable Value-Driven Investment
In more of a macro sense, we also see data use as a means of bringing about more focus on value-driven investment. Our piece titled ‘What Dominant Attribute Will Be Needed to Succeed in Money Management in a Disrupted World?’ touched on this idea. The piece hypothesized that in the future, “success will come from personal character and values, much more than technical skills.” This is an idea made all the more feasible when we consider the impact of data analysis. Because data helps to define asset management decisions, it already means making decisions less based on skill. And with data responsible for analysis, strategies can then be developed based on character and values. In other words, where asset managers once had to focus on conducting analysis and formulating strategies, the analysis can now largely be done for them. That leaves them better able to combine data-based analysis with personal strategies to make management decisions.
Through these factors and developments, the use of data and analytics is poised to transform how we think about and approach asset management.
Article contributed by Rosanne Jackson
Image credit: Pixabay
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