The term ‘big data’ may be old hat but the revolution which it tried to describe appears to have, if anything, reached a fever pitch. All industries are digitalising, not the least being finance and investments.
In the investment world as the revolution plays out there are already many casualties and there will be many more to come. But lots of new jobs are being created too. As Lou Maiuri says: “machines don’t work on their own.”
Maiuri is the Boston-based head of State Street Global Markets and State Street Global Exchange (GX) as well as a member of the senior management committee which sets the company’s strategy and policy. GX is the division – one of State Street’s ‘four pillars’ – that provides clients with real-time data, analytics and electronic trading solutions.
On a visit to Sydney last week Maiuri poses an interesting question: “Why can’t we strike a NAV [net asset value]without a person being involved?” And a supplementary question: “Can we have continuous NAVs set throughout the day?”
For a custodian having a NAV, which is arguably the most crucial element of their daily work, struck without a person being involved seems far-fetched. But Maiuri is serious. “We have to automate more of the key infrastructure in our industry,” he says.
The automation leads to job losses, with State Street having predicted early this year that the equivalent of about 7,000 positions will be made redundant globally by 2020, which shareholders are quite happy about. But the headlines don’t speak of the hundreds of new positions opening up.
Maiuri says that he would not be surprised if State Street still had 33,000 employees around the world in a few years time, as it does now, but many of them will be different sorts of people in different sorts of positions. “We’ve added about 100 new jobs in GX this year,” he says.
Project Beacon, which is being driven by Mike Rogers, the president of the bank, is how State Street is fighting in the revolution, on behalf of both clients and itself, for shareholders.
There are four core areas of GX which take advantage of both digitalisation and the massive increase in data availability to improve clients’ operations:
- asset-raising strategies
- helping to create and manage alpha
- helping to manage risk, and
- lowering middle and front-office costs.
State Street set up centres of excellence in various countries, including China and India, as well as in North America and Europe, several years ago. This has gone hand in hand with its aim of having at least 50 per cent of group revenue from outside the US, a target which would be a lot easier to achieve if the company stopped buying US-based businesses. The first three data management clients for GX globally, under its current structure that brought together various research units, were Australian super funds. Big super funds, themselves going through a transformation away from the traditional outsource model, have increasingly sophisticated needs.
For GX, this means that the data is brought together and analysed by business people in all geographies around the clock.
Maiuri says it is like the supply of electricity. No-one worries about how the electricity is generated or distributed to your home or office. You just plug in your appliance and use it. But many people have to source the data, aggregate the data and then distribute the data before we can begin to use it.
Peter Lynch, the famous investment manager at Fidelity, used to do his own field research, such as visiting shopping malls to assess what people were doing and where they were shopping, rather than just analysing broker and other research reports. Now, similar insights and more can be gleaned digitally.
What people are saying about stocks can be analysed from social media. And correlations pop up between different stocks. For example, discussions and news reports about General Motors often also mention Microsoft, because of the importance of supply chain management, Maiuri says. And “earnings predictive technology” can analyse searches to see how sentiment is being predicted.
“In addition to sentiment, we are using what I refer to as digital foot traffic. [We can get and analyse] search results from search engines and location of phones within retail outlets on a quarterly basis.”
In terms of raising assets, State Street built its Private Equity Index, which is based on information from about 2,500 GPs (managers) and LPs (investors) as an investable product, replicating the liquid markets. Hedge funds are increasingly using big data sciences to stay ahead of the competition.
“But we don’t recommend anything,” Maiuri says. “We just provide the signals; no investment advice.”
* Greg Bright is publisher of Investor Strategy News (Australia)