Quantification and the supremacy of data: How new technologies are redefining institutional investing

Quantification and the supremacy of data: How new technologies are redefining institutional investing

26 May 2022
Daniel Leveau, VP Investor Solutions

Rapid and relentless technological advancement is revolutionizing the methods, tools and processes used by today’s investors. This presents opportunities for fund managers to profit from new ways of generating alpha and to scale their businesses more efficiently. Within this ever-changing environment, SigTech identifies two trends of particular significance:

  • Wide-spread quantification

  • The supremacy of data


These trends offer rich possibilities for investors, but they also pose potential problems for those institutions unable to adapt to the rapid pace of change. In this blog post we outline SigTech’s view of these trends and discuss how our R&D is generating solutions to meet the challenges they pose and exploit the opportunities they present.

The Quant Revolution

The digitisation of the investment industry has long been an observable trend and shows no sign of abating. With the expansion of computing and cloud capabilities, the arrival of advanced analytical methods (e.g. machine learning and artificial intelligence), and the emergence of increasingly efficient analytical tools, today’s systematic fund managers enjoy a competitive advantage over many discretionary managers. This has resulted in increasing demand for quant funds from institutional investors.

At the same time, to avoid obsolescence, discretionary funds show a growing propensity to systematise parts of their investment process, be it in the widening of their product range to include quant funds or the integration of systematic analytics. As the scalability of the IT infrastructure (e.g., data management and analytics) offered by specialist providers now exceeds what most firms can build and maintain themselves - both from a know-how and cost perspective - we are witnessing the gradual shift to outsourced solutions.

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Data Deluge

Fund managers are in an arms race to unlock the true value of financial data. Across the industry there is an almost unanimous recognition of the importance of high quality data in generating alpha. Gaining access to clean, validated, operationally-ready data is essential for effective research and portfolio management. However, as a consequence of its rapid growth, the market for financial data has become increasingly fragmented, frustrating efforts by fund managers to interact with data vendors and procure the information they require.


In our recent survey of 100 leading systematic hedge funds and asset managers, one of their biggest concerns was the difficulty in accessing high-quality data. Consequently, four out of five fund managers expressed their intention to outsource their data requirements.

Furthermore, the market for alternative data has exploded, with a 50% annual growth rate predicted in coming years1. Yet, as data becomes increasingly niche, there is a growing awareness amongst institutional investors of their lack of in-house specialists to efficiently and effectively process the data. Thus, many opt to partner with third-party specialists.


Current Innovations at SigTech

We consistently develop our quant technology platform’s core functionality with the generation and refinement of strategy building blocks and analytical tools. In addition, a range of R&D initiatives seek to respond directly to the trends currently disrupting the industry.

SigTech is dedicated to helping investor explore and exploit the true value of financial data. Responding to the concerns voiced in our Financial Data Research Report 2022, the upcoming launch of DaVe (the SigTech Data Validation Engine) will provide investment managers and data owners access to a service to validate and clean datasets. It ensures that data provided by a range of vendors is interoperable, and ready to use. Not only does this significantly improve the quality of data, it reduces lead times to get data operational from months to days.


To reduce barriers to conducting quantitative research and enable faster scaling, SigTech is developing SigLang. It facilitates the construction of bespoke trading strategies in plain English and can be voice operated. This provides the ability to perform rapid backtesting and execution without the need for writing complex code. To see how it works, watch the following video demonstrating a beta version of SigLang.


Future-proofed Investment Operations

As the investment management revolution continues to unfold, we expect the trends identified in this article to continue and intensify. To fully profit from these technological advancements, investors require access to high quality data and a robust - while flexible and scalable - IT infrastructure. As that infrastructure becomes increasingly complex, and the data increasingly niche, investment firms must also enjoy access to technical expertise. Yet, it takes considerable time and effort to effectively manage technology and build up the requisite in-house specialist knowledge. This is time and effort better spent on an investment manager’s core activities of making investment decisions and generating alpha. Investment managers can profit from outsourcing these elements of their operations in order to avoid the exorbitant costs of building and refining the necessary technological framework.

SigTech helps global investors with a combined AuM of $5 trillion to accelerate their data-driven investment processes. Through our quant technology platform, they gain access to validated and operationally-ready data, a state-of-the-art backtesting engine and the ability to seamlessly transition strategies from research to production.

If you'd like to find out more about how SigTech can help you redefine institutional investing, please get in touch.

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References

[1] Grand View Research