In the age of data, smaller fund managers are competing against larger players with hundreds of data analysts and must make a difficult decision to specialise or generalise to survive.
Speaking at an international business review webinar, Douglas Isles, investment specialist at Platinum Investment Management, said the data revolution would trigger an arms race of product differentiation.
“You have real big dilemmas when you’re dealing with this as an investment team because at one end of the thing you’ve got this race to zero, which is people trying to trade for profits that exist for nanoseconds,” Isles said.
“But then you have to get closer and closer to the exchange so there is no latency and that becomes an arms race at some point.”
Isles said he worked for an Asian-only broking business that competed with the household names of institutional investors.
“We were competing against the Deutsche Banks and the Goldman Sachs and the Citi Groups of the world who had global technology platforms, so we could never win a race by having the best technology,” he said.
“There’s a point at which you have to say, there is a level of technology which I must have to stay in business, and then I must decide where do I pivot in order to stay in this game to compete?”
Isles said some smaller funds may choose to provide a more human element to differentiate.
“In our context as investors, we use data, we use a quantitative input, but then we focus on often the things that are harder for machines to focus on,” he said.
“We focus on change that is not being picked up by the market or we focus on setbacks that companies are facing and try and determine whether they’re transient or permanent.
“There’s a lot of things here where it’s trying to work out your edge before you determine the effort that you put in, and then the reward or the return that you get back from that.”
