Investor collaboration in a digital world

By Keith Bortoluzzi, CEO, Thread

Information and data have always been the foundation on which rational humans base their decisions. However, the more complex the situation is, the harder it can be to gather the necessary data and insights to make the right call.

For investors, getting access to high-quality data points has been a challenge since time immemorial. If we look back as far as 1602 and the world’s first stock exchange in Amsterdam, traders would get the information they needed through one-to-one conversations with peers and merchants. At this time, very little time or energy would have been put into fact-checking or making sense of the information investors had access too.

Skip forward to the 20^th century and, as you would expect, access to a wider source of information had improved radically. Investors and traders spent vast amounts of time analysing annual reports and newspapers in order to find useful data, but still, the analytical part of the investment process was limited to a few educated guesses, reliance of the expertise of their peers, and assumptions about sectors and companies.

Skip forward to the present day, and as access to data and the tools to analyse it improved, investors have had to dedicate increasingly more time and money to data analysis. The underlying objective of this is that acquiring as many insights as possible will translate into higher portfolio performance.

However, rather than solving the information problem, namely a scarcity in good quality and reliable data points, the investment community now has the opposite problem – information overload. In today’s environment, investors are drowning under an overwhelming volume of data and insights that they have to read and analyse ever day. It creates a new challenge for investors and arguably, not the best outcomes in terms of portfolio performance.

The problem with data overload for investors

Most would agree that data overload is detrimental to efficiency, even if the insights you have access to are very high quality. For investors, it creates a unique set of challenges:

• Reduction in time spent turning insights into meaningful investment decisions: for many investors, the impact of data overload has been a shift from time taken to produce investment theses to compiling information.
• From Asset Management to data entry: During the interviews we conducted with investors, they repeatedly told us how time consuming it is to find the right information on cluttered user interfaces, not to mention how tedious it can become processing thousands of reports sent by research providers each day. It is worth considering how many investment ideas are lost in overflowing inboxes.
• More data equals less clarity: The more data you pour into an investment decision, the harder it is to explain the main drivers of that decision. However, this is a problematic area given that since the 2008 financial crisis, fund managers need to be able to justify every investment decision to investors and regulators.
• High cost: spending on data sets has increased at 27% CAGR for the past four years. The cost of data rises because investors acquire new datasets, but also because the price of the existing datasets increases. In 2019, the Financial Times reported that brokers, fund managers, and others were increasingly vocal in their displeasure over the rising costs to receive information.
• Job satisfaction: In our interviews, several interviewees confessed that they increasingly felt like machines and that the daily deluge of information stripped away from the most enjoyable part of the job, that of coming up with sound investment theses and advice.

Asset managers recognise that the marginal benefit of additional data is now low. However, they also fear that if they don’t keep up, they may face an information disadvantage. As data providers continue to invest in alternative datasets, from geolocalisation to sentiment data, this problem is only going to worsen.

Making workflows more efficient and collaborative

The tools and technology investors use are going to be key to addressing the challenge of information overload, and gaining meaningful and valuable insights from data. While millions of investors are heavily reliant on spreadsheets, emails, or chat, for sourcing, analysing, planning, and reporting about their financial investment decisions, those tools were not designed to facilitate the sharing of complex datasets that investors routinely rely on.

Spreadsheets, for example, are often fragile, breaking easily and requiring highly paid employees to spend hours on repetitive, mundane tasks, managing contributions over emails, and copy-pasting between files. At best, this leads to a frustrating experience, and at worst, the data upon which the investment decision rely on is lost or inaccurate.

There is a clear opportunity to break down data silos created by spreadsheets, emails, and chats and allow vast communities of experts around to world to pool their insights on some of the most challenging questions. By centralizing data into an all-in-one workspace that users can easily interact with, you make investment decisions simpler, and provide a single source of truth from which to work from.

Enabling technology

To be truly productive in today’s interconnected but physically-remote world, Asset Managers need a new approach to digital collaboration. A next-generation technology which enables them to share and discuss ideas, as well as retain learnings for the good of the whole team and wider business.

Just as our 17^th century traders gathered to share insights and knowledge, a digital workspace should enable investors a virtual space to create, discuss, and challenge investment ideas. Real-time exchanges can recreate those in-person discussions which are so essential to good investment decisions, while also providing a central repository for insights and conversations so Asset Managers don’t have to ‘reinvent the wheel’ each time.

Technology can also offer investors the opportunity for real-time editing and commenting on investment notes, a centralized and shared views build so that teams can tap into a ‘single source of truth’, access to company restatements and estimates made by your colleagues, and the ability to edit estimates directly within a shared table which removes the hassle of copying and sharing Excel sheets with teams as a way to share knowledge.

One thing is clear, it’s time to address information overload for investors and redefine the way they manage information and collaborate. If one positive can come out of the Covid-19 crisis, it is the acceleration of investor technology; the chance to reimagine the way we work and find tools which better fit our needs.