CHIEF OPERATING OFFICER

3 Pillars to Effective

Investment Decision Infrastructure

  1. CENTRALIZED PLATFORM

  2. MEASURABLE FEEDBACK LOOP

  3. MODERN WORKFLOW TOOLS

The COO has long been the driving force of improving efficiency in the Middle and Back Office.

 

Now, leading COOs are adding “Operational Alpha” to the Front Office too, as they evaluate a new generation of investment process tools that support and improve decision-making for investment teams - helping the firm become more profitable & scalable.

A Front Office Decision-Support & Analytics Platform 

3 Pillars to Effective Investment Decision-Making

"With the EDS Platform, our deep fundamental process is centralized and measurable - like having our investment team together 24/7, making sure our portfolio always represents our best and highest conviction ideas."

 

- Senvest Management, New York

Working with EDS is like having a platform and full quant team on staff to support your fundamental research process…only faster, more efficient, and more reliable.  Table stakes for a new era of investing.

- Multibillion-dollar Tiger Cub

CENTRALIZED PLATFORM

Get critical intelligence out of non-scalable, and error-prone excel spreadsheets,

off of analysts hard drives (and heads) and into a secure platform

 

 

What is it

A single system that supports the entire investment life cycle, including Idea Generation, Research Management (RMS), Portfolio Construction and Risk Management. These are typically siloed and/or fragmented solutions. 

 

What are the Benefits

  1. Optimal utilization of all data/intelligence that is part of the investment decision-making process (internal & external): including fundamental data (financials, estimates, etc.), research data & notes, alternative data, qualitative research, propriety models/scores, etc.

  2. Best practices research process (see #3) that is leveraged by the entire investment team, that also provides optimal learning for talent   – ex. view multiple inputs in a single dashboard.

  3. Most efficient method of identifying risks, opportunities and confirming portfolio matches intent (single pane of glass) 

  4. Creates a strong compliance system and internal information stays in-house - no matter if an analyst/team leaves.

  5. The technology/providers has advanced, such that it is quick to implement, flexible to each firm and meets any budget.

 

What are the risks of not having a centralized platform

  1. Unable to scale effectively – ad-hoc method of driving continuous improvements throughout the entire firm.

  2. Investments being made with incomplete data or information

  3. Anecdotally biased decision-making

  4. Weak compliance monitoring and Intellectual Property leakage.

  5. Inefficient and siloed Investment Team - working on disparate systems, processes and datasets

A CONSISTENT & MEASURABLE FEEDBACK LOOP

What was changed, who changed it, what was the result, what did we learn, and do we change anything

What is it

The ability to maintain a history of point-in-time data, both qualitative and quantitative.

What are the benefits: 

  1. The ability to drive continuous improvement through a scalable system that monitors/tracks inputs and  decision-making (performance) relative to historical behavior (what did we know at the time, how did we react, what was the result, how do we adapt)

  2. Maximize/monitor team performance and alpha (ex. who can we count on, how do we build the right investment team)

  3. Creates a tier-1 Investor/compliance process to answer questions with confidence, ex. Why did you make investment, Why did you increase/decrease your positions, Is your process repeatable?

 

What are the risks of not having a measurable feedback loop

  1. Higher risk of repeating past mistakes or missing consistent successes

  2. A poor learning environment and a higher risk of failure for existing and new employees

  3. Sub-optimal monitoring of portfolio & investment team

  4. Inefficient investment team support and potential for missed performance opportunities.

  5. Increased compliance risk

  6. Sub-optimal investor program: time-consuming project to directly answer investor questions of the how and why’s and repeatability of investment process.

MODERN WORKFLOW TOOLS

Don’t seek to replace or change behavior, but to integrate the use of  email, notes and spreadsheets

more efficiently to enhance collaboration across the investment team

What is it

Streamlined, automated and easy-to-use dashboards/screens, which aggregate all fund intelligence for the purpose of Idea Generation, Research Management (RMS), Portfolio Construction and Risk Management.

What are the benefits

  1. Every team member has the most efficient and advanced environment to perform their work - All research captured and shared (if authorized) throughout the firm

  2. Every team member is working with the same data, can view other members data (if they have admin access to it), can contribute effectively and has confidence all inputs are up to date.

  3. Everyone has a non-biased and efficient methodology for the evaluation of performance and contribution to the business.

  4. Investment insights / potential risks are not missed - surfaced in real-time to always make sure intent matches reality.

 

What are the risks of not having modern tools

  1. Decisions being made without full information and knowledge (risk of lost alpha)

  2. Investment team is not fully utilizing support infrastructure (tools and content)

  3. Sub-optimal environment for learning, advancement and evaluation

  4. Wasted time spent working with multiple applications

  5. High potential for inaccurate results

Examples in the Real World 

RISK MANAGEMENT

What is the workflow

Incorporation of risk elements (exposures/factors/volatility) alongside other data when selecting and sizing positions.

  1. Integrated into the investment process vs. typically limited to post trade analysis.

  2. Providing advanced risk inputs/tools downstream to all investment team members (Analysts, Traders, PMs, associates, etc.

What are the benefits

  1. Turn Risk Management into a Performance Driver - Proper Risk controls becomes integrated in the culture of the firm. Ability to evaluate risk earlier in the process (saves time, keeps garbage out of the portfolio)  

  2. Add additional inputs with zero disruption (Ex. ESG approach to meet investor and compliance requirements)

  3. Analyze performance attribution across the team and over time for optimal resource allocation

 

What are the risks of not implementing

  1. Intent vs. reality mismatch (underperformance)

  2. Poor Investor reception (investment process is not communicated effectively)

  3. Poor compliance oversight (typically post trade)

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