Personalised investment management – three unstoppable forces & Object-Oriented Investing
3 March 2018
First, the digital revolution extends from internal, driven by the need to improve operational efficiency, to external, fuelled by growing demand for digital engagement by all actors across the value chain. In the age of the cloud and ubiquitous apps, it no longer cuts it to build products, cover clients and provide after-sales service with tools developed in the late 90’s / early 00’s.
Second, money management is inexorably going systematic. Factor investing, smart beta, quant indices and robo-advisors are all part of this trend, along with the growth in ETFs as investment building blocks. It does not mean all investment managers and advisors will end-up being replaced by machines and that active management is dead.
It means that the traditional lines between quant and fundamental on the one hand, and active and passive on the other, are blurring. Quantitative techniques are becoming an increasingly important item in the toolkit of all financial professionals.
To use an analogy from a different industry, would you imagine boarding an airplane that has no autopilot? Science and technology made flying safer and more reliable. Everybody should welcome a similar trend in asset and wealth management.
‘would you imagine boarding an airplane that has no autopilot?’
For those afraid of losing out to machines, one should take comfort in the fact that there is still a pilot in the cockpit, and it will be so for a while. It is time to seriously embrace the systematisation of money management and harness it to produce better outcomes for clients and other stakeholders.
This can be done without drowning in the smart beta alphabet soup or getting lost in the factor zoo.
Third, the primacy of personalisation dictates that one product for all is no longer sufficient. End-investors increasingly demand custom beta vs. bulk beta, personalised solutions vs. mass-marketed products and bespoke strategies vs standard offerings.
It goes without saying that the financial profile of a senior corporate executive is very different from that of a doctor or university endowment.
Investment solutions must reflect these differences and go beyond simplistic low/medium/high risk categories. For example, environmentally-minded clients will prefer portfolios that are negatively correlated to the price of coal or crude oil. Yet such links are rarely measured, let alone shown to end-investors, today. These forces are at play against the backdrop of a changing regulatory landscape, with MIFID II, in particular, in particular, taking considerable mind-share away from other strategically important matters.
‘personalised solutions vs. mass-marketed products and bespoke strategies vs standard offerings’
Generating demonstrable performance and providing differentiated service requires new tools and new thinking. We are seeing firms small and large re-think the way they design products, manage portfolios and serve clients. A movement has started. Its aim is to harness the tectonic shift towards digital and quant in order to combine the best of human and machine and offer truly personalised investing.
Introducing Object-Oriented Investing
The powerful concept of object-orientation has helped drive computer science, technology and business for decades. It allows for various digital objects to be created, manipulated and visualised with ease. It is an essential aspect of apps, operating systems and programming languages that power today’s society.
At ALPIMA, we apply object-orientation to investing. We start from the insight that any investment strategy, be it a portfolio, an index or a quantitative strategy, can be described as an object with its own attributes, such as constituents, allocation logic and constraints.
Strategies can be static or dynamic, based on a fixed or changing set of constituents, and have embedded goals. Object-Oriented Investing™ considerably improves and accelerates the design, implementation and monitoring of rule-based strategies, thereby enabling product designers, portfolio managers and advisors to improve the way they design products, build portfolios and serve clients.
Creating a new strategy becomes as easy as building Lego. Strategies can be evaluated in great detail via dynamic dashboards which instantly reveal the drivers of performance and risk. They can be combined, compared, composed and optimised to match very specific requirements. They can be altered based on market views and product preferences.
‘enables the delivery of truly personalised investing at scale’
Object-Oriented Investing™ offers many advantages. It enables the delivery of truly personalised investing at scale, and the reconciliation of traditional opposites such as fundamental and quant, or active and passive management. It leads naturally to evidence-based and goal-based investing.
It makes following a scientific approach easy so that hypotheses can be verified quickly. It boosts financial intelligence by generating valuable insights, helping to gain a deep understanding of strategies and portfolios.
And it lends itself uniquely well to machine learning, AI and tokenisation. We built ALPIMA’s platform around the idea of Object-Oriented Investing™ with one purpose: to help our clients improve the way they design products, build portfolios and serve their customers and investors. For a more detailed discussion on Object-Oriented Investing™ and how it can help you secure your competitive edge, contact us at:
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