By: Ian Fraser
Published: Financial Times
Date: 15 March 2015
Automation and computerisation are creating “a brave new world” for the asset management market, says the chief executive of the world’s largest listed hedge fund group. Man Group’s Emmanuel “Manny” Roman told delegates at the National Association of Pension Funds investment conference in Edinburgh he finds the struggle between man and machine fascinating.
In a talk entitled “10 things that Janet Yellen forgot to tell you”, the 51-year-old Frenchman said: “When passive investment started, no one believed it would last, but the reality is that, every single year, more money is going into passive [investing]. Quant is going to be similar. Slowly, but surely, more money will be managed by computer. [They] are cheaper, they are faster and the client is better off.”
Mr Roman said Man Group, which has $72.9bn under management and saw pre-tax profits jump 62 per cent last year, recognises better data are the key to competitive advantage.
“We spend an enormous amount of money and resources acquiring data and making sure we can look at everything really, really quickly.” He said this necessitates a very big IT department, “something to which we in the fund management industry have not paid close enough attention”. He believes the shift is already creating barriers to entry in the sector.
“The machine will become more and more important in a lot of things we do.” Technological advances mean we are “living in a second industrial revolution”, he said, in which 35 per cent of manual jobs could disappear and in which Californian tech hub Palo Alto is “the centre of the world”.
Mr Roman said globalisation and automation were driving prices down with such fierce pressure it is hard to imagine a situation where you have inflation. “You would have to have a cataclysmic event in the Middle East, where the oil price surges from $60 to $120 overnight, for inflation to come back,” he said.
But he said the biggest risk facing the global economy is that US growth will weaken in the second half, and will be lower than the 2.9 per cent economists are predicting.
Michel Bernard, director of institutional clients at fund house Unigestion, does not doubt investors will pour more money into quant funds “but that there still needs to be a significant qualitative element”. He said: “Computers can deal with a lot of data and have a very non-emotional view of the market, but a computer doesn’t see things that you and I can see like the mood of [ECB president] Mario Draghi.”
He warned Mr Roman may be wrong about inflation, saying the rise of populist parties such as Spain’s Podemos could trigger such an event, saying: “I was surprised he could not see another source of inflation other than an external shock.”
In his talk Mr Roman also expressed concern that, despite post-crisis deleveraging, global debt-to-GDP has increased from 380 per cent in 2007 to 415 per cent and that low rates and quantitative easing have left many asset classes ripe for correction.
“Bubbles are complicated. They go up, but it’s very difficult to predict if and when they will burst. I would urge everyone to be very cautious.”