For over 40 years now a battle has been raging in investment management: active vs. passive management. As the years go by the battle seemingly only increases in its intensity with passionate adherents on both sides. Because this tussle is sure to continue, why not just make some critical assumptions, and instead, debate what the world looks like if those assumptions prove true? To me, this is a much more interesting approach.
Let’s assume the following things happen in the next 7-10 years, for the sake of argument, and more importantly, insight:
1. Passive wins, both in terms of securing the bulk of assets under management and in driving fees lower for everyone in investment management.
2. Passive products are offered, not just at a 0% management fee, but as loss leaders.
3. Active management, to compete, not just on price, but on differentiated outcomes from passive management, begins to converge on an unconstrained investment model. Here, products do not have capitalization, growth or value, long or short, asset class, or geographic constraints.
The Question at Hand
Let’s just consider these assumptions as a reasonable hypothesis and scenario that may play out, while fully accepting that other scenarios might occur.
For example, it could be that a recession occurs and that fully invested passive strategies experience 100% of market declines, while active management again demonstrates an ability to surf recessionary tsunamis. Another could be that things continue on in a muddled way with advisors eventually learning how to identify high quality active managers. And so on.
These other scenarios are variations on a status quo theme. The assumptions given above, by contrast, put forth a radically different 21st century version of finance and investing. What would that look like if you are an investment management firm. And more importantly, and the subject of this article, and of a forthcoming Micgoat debate is:
Will technology dominate finance?
Knowing the approximate answer to that question is interesting, both for firms and their investment pros. Interest can lead to proper skill acquisition and positioning NOW.
21st Century Considerations.
Among the issues smart, wise, and energized 21st century investment professionals need to consider are:
- What is the role of big data, alternative data, machine learning, and artificial intelligence in investment management?
- What is it that human beings do well? Will machines supplant all human activity? Are there things that people do that will always remain out of reach of machines?
- How do investment firms utilize investment professionals?
- What skills are investment professionals going to use to compete? Is it increased soft skills, like listening, interviewing, communications, and creativity? Is it hard skills, like programming micro-algorithms, entire trading platforms, automation of idea generation and preliminary analyst, and so on?
- What do the tools available to investment pros look like?
- What kinds of data are yet to be entered into the picture? Do we have live biometric data on customers while they are shopping, coupled with geolocation? Do we know the psychological profiles of asset owners in response to financial market movements, such that we can anticipate their risk appetite given market gyrations?
Debate Date, Don’t Be Late.
Consideration of these very important questions takes place exclusively on the Micgoat platform on October 30th at 9am.
Register here to join the debinar with Jason Apollo Voss on October 30th at 9am EST
What? You haven’t downloaded Micgoat for your iPhone, yet? We do know that smart devices are a part of the 21st century investment pro’s repertoire, and we hope Micgoat is, too.
- Saurabh Mukherjea, Founder, Marcellus Investment Managers, Author, Coffee Can Investing and The Unusual Billionaires
- Andy Hamer, Head of Hedge Fund Sales North America, Commerzbank, New York, and believer in the power of human beings to do things that machines cannot
…then YOU get to weigh-in on the issue. We are certain that you will find this conversation vital, interesting, and full of issues that many have yet to discuss in a meaningful way.
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