Adam Jones, CTO at Redington, outlines five key inefficiencies in the investment research and fund selection process and the way technology can help tackle these inefficiencies.
Research is an essential but notoriously arduous process for those in charge of selecting and advising on investments.
At its best, the research provides objective, data-driven decisions based on clear evaluations of risk and reward, while eliminating any existing information gaps and drawing on a rich, cohesive combination of quantitative and qualitative factors.
Traditionally, however, the process has been hugely labour-intensive, relying heavily on the workforce to collate, store and update the data points.
Adam Jones, Chief Technology Officer at investment consultant Redington, believes that using technology to create an up-to-date, intuitive and accessible data hub could help improve investment research inefficiencies in five key ways and allow research teams to focus their efforts on other, more proactive tasks.
1. Removing administrative burdens:
“Investment research has always required a great deal of time, effort and money which analysts and managers could more effectively deploy in other areas. Not only that, but technology can quickly and efficiently pour through hundreds and thousands of data points and admin tasks at a much faster rate than humans.
“Utilising technology can therefore improve the harvesting of data while removing the laborious administrative side of the investment research process, freeing up specialists to focus on other tasks that require human input, such as meeting fund managers face-to-face.
“What’s more, using a research management system that consolidates all your data into one place allows you to gain back precious time that would otherwise be spent extracting that very same data from individual sources. A centralised tool gives you instant access to the performance of hundreds or thousands of funds at the click of a button, without having to manually search for each one.”
2. Creating comprehensive audit trails:
“One of the most important aspects of investment research is good governance – being able to prove that any investment decisions were made following in-depth research, analysis and due diligence. Ideally, this involves providing a bulletproof audit trail of those processes and decisions.
“There’s always a possibility that research and investment decisions are questioned, and sometimes research teams may be asked to provide a backlog of meeting minutes, decision logs and email trails as evidence. Using technology to produce a clear and comprehensive audit trail reduces the risk of any possibility of human error and, if necessary, can prove that each decision was made in good conscience.”
Having a data hub allows you to showcase your decisions, email trails and meeting minutes easily, without the added administrative burden of paper and old-fashioned filing systems.
3. Demonstrating value:
Good governance should also be looked at from a cost perspective. Research can be expensive, and often that cost gets passed onto the end investor without explanation.
“Investment research, especially for firms who offer their own products, is a very costly process and therefore constitutes a significant proportion of the fees charged to clients. Yet the processes themselves are largely invisible to the end investor. Research often involves screening 500 fund managers, meeting 50 of them face-to-face, then whittling them down and having regular contact with 10, and it’s important that end clients understand this process – and that it is value add, not an unnecessary cost.”
Technology allows research processes to be easily tracked and explained to end investors, which in turn gives a better understanding of why each investment decision has been made.
4. Facilitating data sharing:
“Another benefit of being able to easily track research is the ability to share the outcomes internally and externally. Externally this can be a huge benefit to clients – as it allows them to understand and feel involved in end choices – and internally it allows a process of knowledge sharing that would traditionally be time consuming and inefficient. It also provides access to information that could otherwise be siloed within the research teams.”
5. Eliminating key personnel risk:
As analysts and researchers progress in their career, and eventually specialise in a particular asset class or sector, their knowledge becomes invaluable. Jones believes this can create a huge problem in the form of key man risk and knowledge gaps when a valued member of the team leaves.
“Key personnel risk can be a problem to investment research teams. Specialists are hired for their knowledge and understanding of a certain sector, and when they leave, a hole can begin to form.
“By storing and curating all the information they have collected over the years within a single, advanced data analytics tool, companies can remove the risk of losing all that invaluable insight. It also reduces the need for a handover period when an investment specialist leaves, because all the data has already been harnessed.
“In this way, technology enables investment research teams to continue improving the quality and robustness of their decisions, whilst also reducing the existing inefficiencies in the processes and practices that help to produce them.”