Last Thursday in London, Saxo Capital Markets and JP Funds Group held an event called ‘The Future of Funds’, at which various thought leaders from the investment industry gave their opinions on current trends in the investment industry and how they see the future panning out for investors and the providers of investment vehicles.
Among those talking at the event was Hedge Think Founder and CEO Dinis Guarda, who gave a talk entitled ‘How Technology and Social Media are Disrupting and Opening New Opportunities for the Fund Industry. To accompany this presentation, he created a slide presentation, which can be viewed via the SlideShare panel below:
Software is “eating the world”
One of the main thrusts of the talk was the impact that software has had on the business world at large, and the financial services sector in particular. With computer hardware becoming cheaper, smaller, and much more plentiful over the years, it was inevitable that it would be the creators of software, rather than hardware, that would eventually reap most of the benefits of this revolution.
This insight was the key to Microsoft’s success under Bill Gates at the expense of IBM, who previously had held a near-monopoly over the business computer market until they were undermined by cheap imports running the same software – Microsoft software. This has been mirrored to a certain extent in the financial services sector, where many of the leading innovators are software companies. Today, virtually every single financial transaction involves software, whether it is the purchase of a cup of coffee or a large capital markets deal.
The internet and social media
One of the effects of innovations such as the internet, specialised software, and social media on the financial services industry is that individuals have been empowered to the extent that everyone could be considered a media and financial “company”, while every business is now obliged to be a media publishing and financial innovation company.
Over the past decade or so, the marketing map for financial services firms – and indeed all firms – has been redrawn. The huge sums that were poured into boosting search rankings via SEO and linkbuilding efforts have come to assume secondary importance for would-be traders and investors, who have become progressively immunised to the ‘noise’ of the internet and are now much more influenced by peer recommendations and positive notices in authority blogs. Also, the algorithms of major search engines have been adapted to favour social influence and authority over the old search engine optimisation tricks.
While financial services firms – particularly ultra-secretive hedge fund management firms – resisted social media initially due to the security and compliance issues it raised, events in the market have forced them to acknowledge it and find ways to embrace it that don’t compromise their processes. Probably the biggest catalyst for this was the ‘hack crash’ of April 2013 in which a fake tweet purporting to come from the Associated Press Twitter account said that there had been an explosion at the White House.
This sent the markets crashing, with major indices such as the S&P 500 and the Dow Jones Industrial Average losing hundreds of billions of dollars in value, only to rebound strongly when the hoax was revealed a few minutes later. This was an extremely vulgar display of the power of social media over the markets, and demonstrated once and for all why the financial services industry could no longer afford to ignore it.
In recent times, hedge funds have been making more and more use of social media in their marketing campaigns, with LinkedIn being the key channel. According to a recent study by Agecroft Partners, LinkedIn is used as a marketing and recruitment tool by around 90% of the hedge funds with more than $100m under management. This is in contrast with smaller hedge funds with less than $100m in assets, 61% of which have no marketing, PR, or content in place.
With the hedge fund industry growing and entering more and more into the investing mainstream, its brands have a need to increase their visibility, and social media provides them with one avenue for achieving this. There is also a need to develop platforms to support professionals working with hedge funds and alternative funds.
New trading platforms
In terms of trading the markets, the biggest change has been the democratisation of trading through online trading platforms, which have levelled the playing field somewhat between professional day traders working for investment banks and fund managers, and independent investors who wish to trade in the markets directly rather than through an intermediary.
While this has posed a challenge to the funds industry – already reeling from the aftershocks of the 2008 financial crisis and the loss of public trust that followed – it has also presented them with new opportunities. In particular, it is no longer necessary for hedge funds to be based in or near stock exchanges, and the range of options in terms of platforms, liquidity sources, and market access protocols has widened considerably. Also, the vast numbers of people trading independently online has created a much larger talent pool, and made it easier for investment banks and fund managers to identify, train, and recruit the successful traders of tomorrow.
Another development in terms of trading platforms has been the explosion of algorithmic, or black-box, trading. While quantitative analysis and automated trading technologies have been around since the 1980s, the technology has come on in leaps and bounds since then, and today 75% of the total trading volume across all capital markets is driven by algorithms. Also, 55% of this volume comes from high-frequency trading activities – superfast computer-driven auto-trades designed to extract lots of small profits from the momentary fluctuations in price.
Trends for the future
In closing, Mr. Guarda identified ten trends that he sees as being key to the development of the investment industry over the coming years. These are:
1.? Peer to peer investment, trading and funding are going to be more powerful for Hedge Funds and the Investment industry
2.? Retail Vs. Institutional investment / trading communities
3.? Proliferation of trading and investing niche influence communities
4.? The advent of digital currencies and global software money
5.? Social Media disruption, platforms and social technologies
6.? Increase of mobile and App platforms adapted with local, regional, national context and technologies
7.? Technical digital semantic platforms based in interest sentiment and algorithms for investors and traders
8.? The way we share value associated with the concept of how (big) data and offshore, open government regulations
9.? The way open data and innovation are transforming countries, emergent markets, laws and business strategies
10.? The idea of thought leadership groups supporting each other and creating premium digital organisations, cities
To see the original notes for the presentation along with other slideshares, visit the SlideShare page for the Future of Funds Presentation.
I am a writer based in London, specialising in finance, trading, investment, and forex. Aside from the articles and content I write for IntelligentHQ, I also write for euroinvestor.com, and I have also written educational trading and investment guides for various websites including tradingquarter.com. Before specialising in finance, I worked as a writer for various digital marketing firms, specialising in online SEO-friendly content. I grew up in Aberdeen, Scotland, and I have an MA in English Literature from the University of Glasgow and I am a lead musician in a band. You can find me on twitter @pmilne100.