First, and arguably the easiest, by fine tuning their investment model inputs. To elaborate with a simple example, simply by increasing the accuracy of manager fee and liquidity terms entered in the system, most analytical models produce better results, thereby enabling you to make better investment decisions, and hence generating better returns. Typically, fees and related terms once entered are never looked at again throughout the life-cycle of the investment. Technology can, in the simplest form, assign an age to the data and prompt portfolio managers to review the data on a periodic basis. More technologically mature organizations can easily leverage their existing hooks in to the data provider systems and update data in real-time/near real-time.
Kicking it up a notch, are the staff who are making investment decisions able to perform scenario and sensitivity analysis with ease? Or do they find themselves in a situation where every time they need to conduct analysis they have to run to someone who can do ‘programming’. Some off the shelf products do a reasonable job of this. However, is this process, and more importantly the variables, fine-tuned to your need? And now for arguably the most important question, is your current process delivering the flexibility and outcomes that you were expecting? If your answer is ‘No’, Technology can clearly bridge that gap.
Now let us examine the conundrum of throughput and productivity. How many managers are your analysts able to screen in a given week? 5? 10? 50? What if it were possible to screen 5000 managers a week? In addition to that what if the data for these managers were modelled out such that they followed the same process as your analysts follow? The beauty of this is that your analysts now have a screened set of managers to look at; ones that have already passed your team’s smell test!
To take it much further, and a bit closer to the cutting edge of technology, is your investment process inclusive of information available in the public domain? How valuable would it be for you to know that one of the portfolio managers in your largest hedge fund investment likes to climb mountains, or swim with sharks… you get the drift. You might be able to factor that in to the manager’s risk profile, or negotiate better key-man risk clauses, or hedge your investment, etc. Current day technology makes this possible – by churning massive tomes of unstructured data to cull vital pieces of data, which when put together and run through a predictive analytics engine provides deep actionable insights!
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