In school, we all learned of Tulip Mania and South Seas Company Bonds. The lessons taught were all about the power of crowds, perception and hope. They were also object lessons in morality and economics. The past is the past, of course we were told, such things could never happen in a modern economy.
Of course, we have learned such ’bubbles’ are neither anomalies nor are they artifacts of past economic immaturity. Instead, they are ordered products of an unregulated system in which economic outcomes are not moored in any way to actual facts or productive capability.
We’ve seen the movie play out. Oil shocks, 1987, the dotcom bubble and bust, the Great Recession and now meme stock trading. Device ubiquity has given almost everyone some entrée into the markets and the power of social media and internet-mediated opinion has given them the fodder to make new bubbles. These are now part of the very tapestry of capitalism.
This is not a screed against bubble-making. But it is a call for a clear bifurcation in understanding, a clear delineation between the opportunities and responsibilities of Asset Managers and those of individual investors. The twain does not meet nor should it.
Consider Asset Management as an industry. Estimates are that in excess of $100 trillion is under the stewardship of Asset Managers. These monies consist of pension funds, university endowments, non-profit reserves, and other important and delicate assets. Managing this money while looking to optimize return, minimize risk, stay well within regulatory boundaries, and dealing with the complexity of asset allocation and global markets requires a data-driven approach and not an emotion/perception-driven, short-term transaction mentality.
As stewards of such vast sums of other peoples’ money, transparency and integrity rule the day. Asset allocation must be done carefully and according to predetermined rules with predetermined guardrails. Governance, security, privacy and compliance are all pillars on which the entire industry rests.
These factors all militate against a quick-turn approach. Circumspection is key in asset management.
With the staggering sums of money involved and the complexity of the global environment, infrastructure and technology investments have to be made judiciously in the space. It is said often that the CIO of the Asset Management firm is the most important employee.
Asset Management firms are awash in data which they have to extract, interpret and act on. The key here is that the data infrastructure assembled has to be dynamic enough to change with new data sources, new data formats and massive speed and scale. To be successful here, the asset manager has to bring to bear an entire ecosystem of professionals and has to be able both plan long term but act in the short term.
AssetTech therefore has to be built with these imperatives in mind. As such, it is different than “WealthTech” and is certainly different than the consumer applications that have disrupted the world of individual investment.
A clarion call is needed for investors to see this bifurcation and to focus on the $100 trillion — 5 times the US GDP — in the Asset Management space.