Jul 18, 2017

How Fintech Transforms Asset Management

In this video blog, James Jockle, Chief Marketing Officer at Numerix sits down with Paul Rowady, Director of Research at Alphacution as they discuss the projected spending impact the technological hype cycles will have on the financial industry.

Video Transcript:

Jim Jockle (Host): Let’s put on the crystal ball. AI is 2017. What’s 2018?

Paul Rowady (Guest): There is a tendency to want to turn the page. So, we do need a different topic even though all the topics that we’ve mentioned from big data and predictive analytics to digital transformation, TCO, blockchain, all of these are still ongoing themes and they’re still all incredibly important. It may be a little early in the year. I mean it could be that there’s a catalyst late in the year. For instance, if you all of a sudden, and it’s crazy to say, that the VIX is what at a 9 or 10 handle instead it’s at a 24, 25-year low that’s insanity compared to what’s going on in the world stage. So, if there was something to have that change, would the theme come off the back of that? In other words, is it unknowable now.

Jockle: And we just a fixed income trading at Jeffries is down and that’s a bell weather mark in terms of their revenues for the quarter. Between the VIX, between Jefferies, there’s got to be market opportunity somewhere so where is that going to maneuver and how is that going to impact spending?

Rowady: You know, in the preliminary findings of our buy-side, asset manager, hedge fund research. Already some of the pictures and patterns that are coming out of that analysis are really fascinating. I think what you see is a lengthening of turnover frequency. So, given my prop trading background and some quant background there, I think of strategies in terms of turnover frequency and what are the dynamics. You know, different turnover frequencies in your strategy, how often you trade or what’s your holding period determines technical infrastructure, determines the portfolio of data sources and factors that you’re looking for. If you’re micro structure, high speed, you could care less about fundamentals if you’re trading past the one day threshold then all of a sudden portfolio construction and all these market neutrality factors come into place and fundamental catalytic data in terms of events, news, earnings, corporate events, these sorts of things come into play. What I’ve noticed in looking at the asset management divisions of say Goldman Sachs, Deutsche Bank, UBS, and then comparing them with a BlackRock, this is analytic assets under management per employee. So, what is the human capital leverage and this is a long way of saying that I notice the turnover frequency based on this analytic because it’s different if you trade real fast your theoretical capacity is quite low. If you trade very slow then your theoretical capacity of that strategy is actually quite high and it creates this curve. So, what I’m noticing the assets under management per employee analytic ticking up for all of these players. Which tells me and it could be a false positive, but it tells me that the duration of the whole holding period is slowing down which means and it would be intuitive to think this, that the money is actually going into private equity and real estate and slower stores of value as opposed to market stores of value where there’s a lot of trading of instruments. We could build an argument for that to support that because the metrics of the market with the VIX at a 24, 25-year low single-digit handle with all that’s going on in the world might tell some that the market isn’t behaving properly or it’s not the source of price discovery that it once was. That there’s something else going on in there, maybe it’s the AI.

Jockle: We’re also starting to see that if you extrapolate that out into some housing prices you’re also starting to see other illiquid markets like art and automobile auctions are at all-time highs. So more less liquid investments.

Rowady: Cigars and wine are next.

Jockle: All right, well you heard it here first.

Blog Post - Jun 24, 2010

Reflecting on SIFMA: Risk and the Explosion of Market Complexity

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