Automation is good, but comfort can sometimes prove better. Anthony questions why Excel spreadsheets are still so prevalent on the buy side, especially at new firms that can choose their own path with new, advanced data management tools.
It's a common refrain that I've heard in many different ways, and at many different times, to describe many different things: We need to automate and move away from our dependence on spreadsheets.
Even with this common battle cry, though, walk through the halls of most any asset manager and you will see a portfolio manager, trader, risk officer or compliance officer scanning through a spreadsheet, and more than likely it will be a Microsoft Excel spreadsheet.
There have been tremendous advancements when it comes to data aggregation techniques and reporting capabilities in recent years. Cloud and hosted solutions populate the market for order management and compliance-related systems alike. Even still, there's a comfort level that spreadsheets enjoy and undeniably, spreadsheets are very, very cheap to manage. Sure, they can be a bit of a pain, but in familiarity there's comfort.
I would've thought that after 2008 there would be a true sea change toward automation. And to an extent, there has been a shift with added investment in end-to-end automated platforms. Gary Brackenridge, who head's Linedata's hedge funds business, says that this can prove a long and slow-to-develop process at large buy-side institutions.
While the largest firms are trying to untangle systems already in place, startup hedge funds and asset managers are relying on familiarity and cost cutting wherever possible. Two different explanations explain the same behavior.
Most startups have only a few people on staff and it's relatively easy to monitor the firm's risk and positions through a spreadsheet. The key is in knowing when to move to an automated solution as the firm grows.
But Brackenridge does note one potentially new driving force in favor of automation: investors, themselves.
As investors become savvier about how a firm manages its risk and positions, they may be more forceful in demanding that the firm reduce or drop its reliance on spreadsheets entirely. While some may like to believe that regulators are the most effective agents of change, in reality money rules and investor dollars will prove a better cattle prod in this regard.
For the March issue of Waters I'll be looking at this topic in depth. If you have any insight, feel free to shoot me an email ([email protected]) or give me a call 646-490-3973.
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