Implementing technology in the Investment Management industry

Predicting the future

Futurists have regularly made predictions that have proved⁽¹⁾ to be wrong, regarding telephones, cars, planes, the atomic bomb, computers, space travel or the year 2000. The end of unskilled work was forecast a century ago after the introduction of machine tool automation. And driverless cars, not to mention flying cars, were already on the front pages of national newspaper in the 1930s.

Technology may come to life without it having an immediate clear application. The fax machine was invented in 1842, well before the telephone in 1876, and it took over one hundred years before it became commonplace. More recently, it took nine years to begin using lightly sticking glue for sticky notes ("Post-Its").

Transforming technologies

Further to big data and API, consultants and futurists are predicting transforming changes due to AI, Blockchain and DLT, and RPA in the financial industry.

Traditional change analysis is split into

1. internal impacts usually leading to work reorganisation, process transformation and cost savings;

2. external impacts tackling client demand and breadth of offering;

3. community impacts involving common infrastructure to improve global security and market efficiency.

Digitalisation impact

Digitalisation bridges the gap between internal and external processes. It enables front-to-back processes with end clients directly triggering production, straight-through-processing (STP) in the financial industry.

At the same time, with the introduction of the Internet, radically new business models underpinned by network effects² have appeared with: open data (OpenStreetMap) and open software (Linux, mysql) for which consulting firms can promote their expertise, free, usually with hidden revenues from advertising (Facebook) or data (Gmail), freemium where a small number of users who want an advanced service pay for most users who are using the generic service for free (online gaming), or collective (crowdfunding).

Clearly, the introduction of blockchain with bitcoin could open radically new organisations with the creation of trust without intermediaries between users.

Very few applications are already live in the financial industry. Much less disruptive, robotic process automation (RPA) is a technique, rather than a new technology, to lower the operational risk that arises from the local automation introduced by operational teams to improve their efficiency using a variety of tools, including Microsoft Excel and VBA. These automation scripts are very sensitive to any change in data model or user interface. RPA consists in choosing a single IT infrastructure to industrialise the development of these “macros” and to have them maintained by the IT team rather than the operational teams. Only the less versatile macros are eligible for RPA.

API and data are commonplace

APIs are not recognised as a new technology anymore. They offer the amazing possibility of extending the  functionalities of an existing information system, provided the resilience of API provision can be managed.

Data, whether big or smart, has become a buzzword even though the value of information has been known for centuries. The difference lies in the current possibility of handling large amounts of data. Data previously deemed insignificant can become valuable.

Three positions towards new technology

Leaving aside consulting firms, freelancers and futurists, different positions are taken by investment managers regarding new technologies: the watchers, who try to stay informed of changes, the testers, who launch minimum-viable-products (MVP), and finally the doers, who incorporate technology within production. There are only 9% of doers, according to the SGSS’ “Taking the Long View” survey, while the watchers represent 43% and the testers 48%. So the question worth asking is how to move from watcher or tester to doer.