The Impact of Technology

The Impact of Technology
by J-F Courville and Jeremy Armitage
 

Here we explore the transforming impact of technology on the investment world and analyze how investment managers will be able to extract more value from markets and thereby achieve even greater performance for their clients. History of the investment process

Over the past 30 years the investment process has enjoyed a steady evolution. The 1970s was the era of information transmission: global information firms digitized asset pricing data and news services to empower the investment world and radically improve the efficiency of the markets. The 1980s saw managers gaining access to effective portfolio modelling tools, allowing them to encapsulate the recent theoretical discoveries of Markovitz, Sharpe and others in their strategies. The 1990s brought us powerful tools in the area of trade order management, enabling asset managers to deal with the growing complexity and globalization of the investment process. We now find ourselves at the step of the Straight Through Processing era; managers will be in a position to trade assets across all markets on a streamlined basis, transferring their investment focus to their respective value-adding processes rather than the trade implementation process.

Benefits of technology
This technological evolution has led the investment world down a steady path of improved market structures, enhanced data analysis and superior investment strategies. Furthermore, the ability to manage complexity has allowed investment firms to implement profitable investment strategies that would be impossible to implement manually. This has paved the way to more efficient risk management, the importance of which is highlighted by all too frequent reminders. We see continued improvements in the provision of accurate and timely portfolio information, real-time data feeds, automatic trade reconciliation, and a shortening of the settlement cycle with resulting reduced exposure periods and improved transparency of the execution function.

A whole area of our industry that is being revolutionized by technology, particularly the communications technology of the Internet, is that of market structure. In earlier generations, markets attracted liquidity by bringing participants together in physical proximity--at a physical exchange. Today many exchanges are "virtual," a collection of members connected by a network. We expect this process to continue, opening up availability to more and more participants around the world, with a virtuous circle of improved price discovery and liquidity.

Challenges
Working with partners who are specialists in their chosen fields has become for many the most pragmatic way forward. We must all seek to ensure that technology continues to bring benefits to our investment processes--yes, enhancing returns and capturing ever-greater investment opportunities--but also improving the marketplaces in which we operate, providing a level playing field that ensures a fair and equitable result for all.

J-F Courville is Managing Director, Global Markets at State Street Canada in Toronto. Jeremy Armitage is Managing Director of State Street Associates in Boston.

Transcontinental Media G.P.