In a week full of fruitful workshops and networking, on Thursday the annual B&R Beurs and FSR Investment Symposium took place. On the day that MSCI announced to incorporate the Chinese mainland stock market in their widely used indices – speaking of disruption – , the real fireworks were still about to happen. A little less than 600 of our members and other people interested in finance gathered at De Doelen to listen to four keynote speakers elaborating on their expert views on disruption, equity markets and technology. For the fourth time, Bob Homan moderated the evening and posed keen questions to the four speakers. This article gives a brief overview of the evening, including some key concepts that the speakers mentioned in their presentations.
The evening started with a talk by Chirag Patel from State Street. As head of Innovation & Advisory solutions for EMEA, Patel talked about innovative solutions in the field of finance. These innovations included big data analysis, artificial intelligence and machines learning. One of the key messages that he conveyed was that the vast amount of data that is available online these days, does not necessarily lead to efficient markets, where all relevant information is processed instantaneously. So why not? First of all, raw data does not say anything. Most of the data that is out there on the web is unstructured and requires in-depth knowledge in order to analyse and make sense of the information. In reality, not many people have the expertise nor the technical infrastructure to interpret these enormous datasets, which gives these people an edge over other investors. State Street implements these methods, for instance, to develop an inflation (or CPI) index that precedes official inflation publications by central banks and statistical agencies. The algorithm that computes this inflation index gathers price information on thousands of online stores and uses price changes to develop a proxy for inflation. The idea behind this is that online prices are less rigid than their offline counterparts. According to Patel, people tend to forget the price that they paid online more often than offline prices. In this way, using these online prices, State Street produces inflation statistics real time and about three weeks ahead of official publications. The company can use this inflation data to gain an advantage over other investors. Some markets, whether it be equity or fixed income, react fiercely to inflation publications, which makes this data immensely valuable. The second reason why Patel thinks that all this data does not necessarily lead to efficient markets is the fact that these analytics are not available to anyone. However, if one has only a bit of interest in data analysis, some trends can also be distinguished on a smaller scale, making it interesting opportunities for the Investment Groups at B&R Beurs.
After the first presentations, it was Bob Hendriks’ turn to present how BlackRock is doing business in the ever changing world of finance. Working as Senior Relationship Manager for the EMEA Client Strategy Team, Hendriks presented different trends that are surfacing in finance. Just like the Chirag Patel, Hendriks identified big data analysis and artificial intelligence as game changers in the field. BlackRock uses these new phenomena, for example to optimize their risk management platform Aladdin. In the beginning, this platform was set up for BlackRock’s own portfolio managers, to identify and manage risk. However, as the platform developed, more and more other asset management firms have implemented Aladdin in their own organisations. In total, the platform is used for over $6 trillion assets under management (AUM), of which approximately $2 trillion are not from BlackRock’s own AUM. This also brings a fair amount of risk, people fear. As trillions of dollars are managed by the same risk platform, those asset managers are likely to make the same mistakes. This is where the new data and artificial intelligence developments come into play. They optimize the systems as to prevent these bugs with possibly catastrophic consequences.
Mark Phelps, Chief Investment Officer of Concentrated Global Growth at AllianceBernstein, kicked off the second half of the Symposium with a talk about doing business in turbulent times. As a rather traditional portfolio manager, he quickly clarified that his profession would be one of the first ones to be lost due to technological advances. But he would not be the only one whose job would not exist in a couple of years or decades. The theme of Phelps’ presentation was the disruption that technology brings about in several different sectors. Some sectors have migrated to the internet for a great part. Think of recruitment, which used to be dealt with by head-hunters or employment agencies. Companies like LinkedIn have transformed these business models greatly. Another example where technology has changed the rules of the game, is mobile payments. Especially in China, mobile payments have increased tremendously with Alibaba (Alipay) and Tencent (Ten Pay), two Chinese heavyweights, dominating the Chinese market. What will be the next disruption? That is a question that remains to be seen, but Mr Phelps gave us a company to watch: Adyen. This Dutch payment platform will have its IPO on the 13th of June. It is a great company, according to Phelps, “but it won’t come cheap”.
After three inspiring presentations, Wesley Lebeau concluded the evening with his talk about disruption. Lebeau, head of Global Disruptive Opportunities at Amundi Asset Management, manages the world’s first ‘disruption fund’, which consists of companies that disrupt the world in the broadest sense of the word. Extraordinarily, with this fund, Amundi has outperformed the MSCI World index, since its inception in December 2016. One of the key messages from Lebeau is to be careful with disruptive assets. Many of them have the potential to bring about change, but are still in a too infantile stage to invest. Many people, for example, claim that blockchain will be one of the greatest inventions since the internet. Lebeau agrees that blockchain has the potential to change the world, but also quickly identifies its problem: nobody knows how. This can be said for many disruptive technologies or other phenomena. Many people have the feeling that it will change the rules of the game, most of the times righteously, but people cannot clearly imagine in which ways. Keep this in mind when investing in the next disruption.
This is a theme that came forward in all keynote speeches of the evening. Disruption is speculation. People have a feeling that some phenomena will influence our lives to a great extent, but often we cannot clearly formulate how, when and why? And if you can, I am sure that there is a seat at the table for you at one of these firms.
Written by Joppe de Bruin