Eduard van Gelderen, a former chief investment officer at PSP Investments and current head of research at FCLTGlobal, highlights the complex relationship between technology and investment management. In his recent analysis, he explores how technological innovation shapes the investment landscape, noting that while investors recognize the necessity of technology, they often grapple with its implementation and associated costs.
Van Gelderen observes that the investment community has long faced a “love-and-hate relationship” with technology. At various conferences, discussions frequently center on the challenges of aligning investor needs with technological capabilities. Quantitative investors often find technology groups unable to fully comprehend their requirements, while technology advocates may propose systems that investors perceive as overly rigid.
This ongoing debate underscores a critical catch-22: investment firms risk falling behind without technological advancement, yet embarking on such initiatives often leads to budget overruns and delayed outcomes. Van Gelderen argues that technology must not merely be considered an isolated enabler but integrated into a broader business strategy. He cites Ashby Monk’s 2023 paper, “‘The Investor Identity’: The Ultimate Driver of Returns,” which categorizes key components of investment returns into inputs—capital, people, processes, and information—and enablers, including governance, culture, and technology.
The interplay between these components often gets misinterpreted. Technology, if viewed only as a means to manage information, can lead to an ineffective allocation of resources. For investors, technology should operationalize intellect and enhance understanding of portfolio characteristics, thereby improving decision-making and linking steps across the investment process.
Van Gelderen highlights the growing focus on artificial intelligence (AI) within investment management. While numerous articles emphasize AI’s productivity benefits—such as news monitoring and report generation—the true potential of AI lies in its capacity to transform the entire investment process. Economists like Ajay Agrawal emphasize the importance of system solutions over point solutions. The interaction between various stages of the investment process could be redefined through AI, enabling real-time decision-making rather than relying on outdated sequential processes.
To achieve this, a comprehensive redesign of the investment framework may be necessary. Mohamed Khalfallah from Emerton Data suggests that by leveraging data across platforms, investment professionals can transition from “information aggregators” to “data-empowered decision-makers.” This evolution is particularly relevant for senior executives, who must contemplate their organization’s “AI North Star,” or overarching technology strategy.
The strategic priorities will vary depending on the organization’s goals. For instance, low-cost beta investors might prioritize productivity gains, while pension funds focusing on risk management could derive greater value from AI applications that enhance resilience. Van Gelderen stresses this strategic vision must be a C-suite responsibility, transcending the role of the chief technology officer alone.
Despite the pressing necessity for technological integration, many organizations are at the nascent stages of their AI journey. The question remains whether the potential payoffs of technology are fully understood. As Peter Strikwerda, global head of digitalization at APG Asset Management, asserts, simply layering new technology onto outdated structures can exacerbate inefficiencies.
In a world marked by volatility and complexity, the imperative for full technology and AI adoption becomes increasingly clear. A cohesive strategy, supported by the organization’s leadership, is essential to navigate present challenges effectively and enhance long-term value. Van Gelderen’s insights serve as a clarion call for investment firms to rethink their technological approaches to align better with evolving market dynamics.
This feature is intended for informational purposes and does not constitute legal or tax advice. The opinions expressed herein do not necessarily reflect the views of CIO, ISS Stoxx, or its affiliates.
Tags: Eduard van Gelderen
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