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As fund managers, we constantly deal with a multitude of factors that drive markets. We examine changes in the macro environment and industry dynamics, and how they in turn affect company fundamentals and asset prices. Yet what has become a more topical issue is how we should cope with the profound changes within our own industry. Improvement in technology, on one hand, has provided better tools for fund managers to enhance efficiency in many areas including research, operations and risk management. On the other hand, it has facilitated the emergence of passive and quantitative strategies which are taking market share from traditional fund management segments. The technology trends, however, have largely overshadowed issues that are more internal to the industry, which in my view have more to do with mentality rather than technology.
I joined the industry when the world was still very much in an “offline” mode. Emails did not go beyond internal servers while data had to be squeezed out of company research and annual reports coming in hard copies. Perhaps the biggest technology investment back then was buying more fax machines to get somewhat “instant” delivery of research notes. The world has obviously changed since then and we can now get access to almost all research input we needed online. Intuitively this should lead to better efficiency in investment research and offer more tools to cover human blind spots. This should arguably help provide better perspectives and allow asset managers more time to focus on drivers that matter most to asset price movements. In reality, this is only partly true. In fact, more resources and attention have been directed to handling and analysing data. To some extent research has become more mechanical with a growing degree of obsession with details. More equate good investment research to ratios over ratios and analyses after analyses. Analysts are trained to believe certain financial analysis frameworks are gospels irrespective of their relevance to asset price drivers. We have somewhat forgotten the reason why we want to do research in the first place, that is to help make good investment decisions and beat the market.
The major issue is less about machines replacing humans but more about humans behaving like machines. It is the mentality of evading judgment and deferring to data crunching on key matters. It is the mentality of hiding in the comfort zone of analysis and refusing to make a call based on conviction. Perhaps there is a wishful thinking that uncertainties can be turned into certainties through layers and layers of analyses.
Indeed, passive and quantitative strategies provide investors with an alternative solution but they will not replace the demand for investment managers who can identify new trends or changes ahead of markets based on their shrewd investment acumen. On a more positive note, the industry is still growing as a whole and there should be enough room for different strategies to co-exist and flourish. The onus is now on the traditional players to refocus on what they are good at and develop talents who can see the wood for the trees.
Henry Chan Yue-hung, Chief Investment Officer, BEA Union Investment Management Limited
Mr Chan is an industry veteran with over 21 years of experience managing Asian investments. As BEA Union Investment’s Chief Investment Officer, Mr Chan is responsible for overseeing both equities and fixed income investments and leading the Company’s Investment Committee and multi-asset strategies. His most recent role was Portfolio Manager and Executive Director at Pyramis Global Advisors (Hong Kong) Ltd. (presently known as Fidelity Institutional Asset Management). Prior to this, Mr Chan was Head of Asia Pacific Investment at Baring Asset Management.