Letting the Multi-Asset Genie Out to Breathe

Going multi-asset may help your returns, but there are hidden costs and complexities.

It's sometimes said that journalists have the attention span of goldfish. Without being overly pejorative, of course, that refers primarily to our tendency to pick up on a topic, run it to death over a course of days/weeks/months (delete as applicable, based on the publication frequency) and then forget about it wholesale until the inevitable ‘One Year Later' article.

I would argue, though, that financial services technology suffers the same tendencies. Everyone went absolutely crackers over cloud for fits and spurts, and it seems to have come full circle now. One analyst I had a conversation with last week told me that the subject was pretty much "done" now, everyone accepts it, everyone's in their comfort zone, everyone gets it. It's hard to argue with that. Another analyst said that Big Data, in its current form, has been discussed to death and that everyone gets it, it's done.

That suits me, particularly given the uncomfortable realization that I can, now, predict with 99.9 percent accuracy what most people will say when I ask them how they're using the cloud. "We're doing it for some things, but others we never will. We have concerns over some aspects, but others make financial sense in a time of squeezed liquidity, smaller margins and contracted budgets." Familiar?

The latest conversational craze is, of course, multi-asset strategies. Which require multi-asset platforms. The logic is sound; people are looking for higher returns for more fickle clients. Cash equities are, as another analyst put to me, "Shit. That's a technical term we use." Technology is at the point where you can toggle switches to swap between instruments in different asset classes, and we've been so focused on usability in systems that it's not too much work to re-engineer or upgrade, if you have the money.

Hidden Costs
Two things stand out, though. We all know budgets are shrinking, and these platforms can be expensive. But you can't just measure the cost in terms of C# and server racks. Your program can trade multi-asset, that's grand. But if your trader has spent his entire career on long-only equities, then you're up a certain creek without much in the way of propellant. The second component is the people, as Olympian's Michael Levas pointed out at a recent Waters event in New York.

Thirdly─and I know I said two things, but there's that famously parsimonious approach to attentive consistency again─there are the hidden costs. Different assets and different markets, while diversifying an investment business, also bring you under different regulatory regimes. You may, for instance, be registered with the Securities and Exchange Commission and fully compliant with your various activities. Add just one in a different market─swaps, say─and you may find you have to register with the Commodity Futures Trading Commission. Or transact with an entity in another continent and find you get a letter from the nice chaps over at the Financial Services Authority.

Multi-asset is great, and it will give you opportunities to breathe in some markets that are squeezed tighter than Starbucks' accounting practices. But there are also a raft of costs, at a time when compliance, risk management and regulatory affairs are taking such priority in IT spend (although, perhaps, a little more on the buy than the sell side, which some say is remaining fairly steadily high year-on-year). Worth thinking about, at any rate, before the conversation swings around to something else in Q2.