Tech at the Margins

It's not just the bigger kids in the school yard

Jim Rundle
Much ado about Mifid II this week, and of course, emerging technologies.

Regular readers of this column will know that I have a background in covering derivatives—and will be equally relieved to know that the headline isn’t a play on words related to collateral rules.

Instead, as is sometimes my direction in this column, I wanted to share and discuss a few anecdotes that I’ve picked up over the course of the week. On Tuesday, for instance, I was in Boston, chatting with the technology director of a relatively small, but growing, asset manager.

You’ll be able to read the full article that will come from that in October, but what really stuck with me after our conversation was the flexibility in approach to technology that this firm took. It has moved most of its infrastructure to a private cloud, for instance, and is replacing its legacy platforms and Excel spreadsheets with what it considers to be best-in-breed solutions from big providers such as Charles River, and other technology vendors.

At the end of the interview, we turned to emerging technology, such as artificial intelligence (AI), blockchain, and all that good stuff, which we write about every week now. The director, as a technologist, seemed to be excited about the promise of this new technology and its potential to free up time, resources and personnel for more innovative tasks within the primary roles of investment management and decision-making.

But he wasn’t ready to go all in.

Bear in mind, again, that for an investment manager with a somewhat modest sum of assets under management, it is a remarkably forward-thinking company. It does a lot with far less than many of its competitors and is open to allowing third parties to take the load where other small, traditional buy-side shops might not have been, such as by effectively pushing its operations and back-office roles outside of the business.

The enlightening part was that he didn’t really see his company as being at the vanguard of this new technology wave, however. Sure, it has an advisory committee that tracks these developments, but for the firm, the exploration is something to be done by others. Vendors, for instance, may determine blockchain is the way forward and either integrate it into their products or make them compatible, same with machine learning and other new tech.

Frankly, the investment manager didn’t really need to worry about it. Not yet, at least.

It made me think that we do spend an awful lot of time talking about the promise of AI, of emerging technologies, but for the firms that make up the bulk of the buy side, it’s all games and theory at the moment. I’d be keen to hear from other hedge funds, asset managers or buy-side shops that have similar—or opposing—theories. Feel free to send an email to me at [email protected].

Also, finally, a quick note to say thanks for the huge response I received from last week’s column on blockchain and the investment book of record. I should have a piece out on that next week.

This week on Buy-Side Technology:

  • UBS has said that blockchain might not be as suitable for wealth management as AI could be—outside, perhaps, of know-your-customer (KYC), which is more or less the standard response when you ask people about blockchain these days: “Yeah, I don’t know about that, but if you think about our super onerous KYC requirements…”
  • Systematic internalizers! Wake up! Over a dozen were registered this month, although the rules have yet to be formalized. Could there possibly have been a worse, more technocratic name, though? Mind you, “broker crossing networks” wasn’t much better.
  • A bunch of moves around the revised Markets in Financial Instruments Directive (Mifid II), mostly from Liquidnet, but also Simcorp!
  • My colleague Anthony Malakian and I talk about most of this on the podcast. And about Game of Thrones. And Nazis.
  • CloudMargin launched a website for uncleared derivatives margin rules. Everyone is launching something for uncleared margin derivatives rules. There. I tied it all back to derivatives in the end.
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