Friday, February 22, 2019

Digital Revolution Checklist: 

Questions to Ask Your Manager

By Scott DiMaggio, Gershon M. Distenfeld, Jeff Skoglund, & James Switzer, Contributors

When it comes to creating alpha, fixed-income managers that stay ahead of rapidly evolving technology will have an advantage over those that remain stuck in the analog world. But how do you assess how well your manager is navigating the changing technological landscape?

It’s critical to know how advanced your manager is, because technology has a direct and increasingly important effect on performance. Managers that have the right tools will do a better job of identifying and capturing opportunities, even in illiquid or volatile markets. And they’ll have more time to focus on the strategic and analytical work that humans are better wired for.

That’s why you’ll want to know where your manager falls on the digital continuum. The following checklist of questions will help you gauge whether your manager has the right technological tools and innovative attitude to succeed in the fixed-income world of the future.

In the last five years, how, specifically, has technology changed the way you do business? What changes are you contemplating for the next five years?

Your asset manager should be able to provide specific examples of how they have improved client outcomes using technology they built or bought. They should also have an explicit technology strategy that anticipates new developments in artificial intelligence, machine learning and fixed-income market conditions.

Can you describe your organization’s culture and attitude toward technology?

An organization that truly values technology should have a track record of integrating it into the investment process, as well as a bottom-up approach to innovation in which the people who encounter everyday problems and inefficiencies are empowered to suggest new technological solutions. Senior management should view fixed-income technology as a top priority.

What problems are your most compelling technology tools solving? What problems do you think technology can solve in the future?

Technology should be used to gain an edge in the marketplace, not just to improve the bottom line. That is, the end goal of integrating technology into the investment process should not be a headcount reduction. Make sure your manager is focused on how technology can help them solve the real-world problems that impede the best client outcomes. If they can’t articulate their current problems or solutions, their strategy may be geared more toward helping themselves than you.

What is your organization’s approach to changing liquidity conditions in the marketplace?

When liquidity is fleeting and scarce, seconds can matter. If firms don’t see liquidity conditions as a problem with a potential technological solution, they’re going to be left out in the cold the next time markets seize up.

Do you see your tools as stand-alone improvements, or as part of a more holistic strategy?

Stand-alone improvements are commendable, but the real value to an investor lies in tools that can “talk” to one another. Now that artificial intelligence and machine learning are upon us, firms should have either digitized all their data into a machine-readable format or have a plan for doing so. This is the first step toward developing a technology suite that is more than the sum of its parts.

How do you think human-machine interaction will evolve in your organization over the next five years?

Too often, managers see technology as an alternative to human intelligence rather than a way to empower it. Firms should have a clear answer as to how machines will empower their existing employees and what new talent they will be looking to hire in the future as their needs evolve.

Name three of your developers.

A sure sign that technology is fully integrated into the investment process? Your manager consults developers so frequently to solve research and investment problems that they know exactly who they are.

In the end, the discussion you have with your asset manager about technology isn’t just about technology. It’s also about how much the manager thinks about the future, how comfortable they are with the idea of radical change and how determined they are to make the kinds of investments that result in long-term success. These characteristics put leading managers far ahead of the rest.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams or TEXPERS. 

About the Authors:
Scott DiMaggio
Scott DiMaggio, senior vice president, is co-head of Fixed Income, Director of Global Fixed Income and a Partner of the AB. As co-head of Fixed Income, he is responsible for the management and strategic growth of AB’s fixed-income business. As director of Global Fixed Income, DiMaggio oversees all of AB’s Global Fixed Income, Canada Fixed Income and US Multi-Sector Fixed Income strategies, as well as their associated investment strategy, activities and portfolio-management teams. In this capacity, he leads AB’s internal Rates and Currencies and Multi-Sector Fixed Income Research Review Committees, the primary investment policy and decision-making committees for the portfolios the firm manages.

Gershon M. Distenfeld
Gershon M. Distenfeld, senior vice president, is co-head of Fixed Income, Director of Credit and a Partner of the firm. As co-head of Fixed Income, he is responsible for the management and strategic growth of AB’s fixed-income business. As director of Credit, Distenfeld oversees all of AB’s credit-related strategies, including all global and regional investment-grade and high-yield strategies, as well as their associated investment strategy, activities and portfolio-management teams. In this capacity, he leads AB’s internal Credit Research Review Committee, the primary investment policy and decision-making committee for all credit-related portfolios the firm manages. Distenfeld also co-manages AB’s multiple-award-winning High Income Fund.

Jeff Skoglund
Jeff Skoglund is Chief Operating Officer for Fixed Income, responsible for the implementation of business strategy, innovation and technology, product development, talent management and acquisition, financial analysis, and regulatory compliance. He was previously director of credit research at the firm, where he oversaw a team that provided fundamental analysis of global investment-grade, high-yield bond and bank loan credits. Prior to joining AB, Skoglund was a managing director at UBS Investment Bank, where he held numerous management positions, including both global head of credit research and head of US credit desk analysts. Before UBS, he was a senior high-yield analyst at Merrill Lynch and Credit Suisse. Earlier in his career, Skoglund was an equity analyst and investment banker at Lehman Brothers and worked at Morgan Stanley in equity derivatives. 

James Switzer
James Switzer is a senior vice president and the Global Head of Fixed Income Trading, overseeing both taxable and tax-exempt fixed-income trading. He also trades financials and REITs, and has been instrumental in the strategic repositioning of our trading organization and the development of our industry-leading trading tools, ALFA and Abbie. Before joining AB in 2011, Switzer was a managing director at Société Générale, where he managed the Financial Institutions Credit Trading Desk, and at BNP Paribas, where he managed the Investment Grade Trading Desk from 2000 to 2002. He also formerly served as a sector portfolio manager/trader at UBS Principal Finance (from 2002 to 2005) and at Sigma Capital (from 2005 to 2008). Earlier in his career, Switzer worked at Paine Webber and Co.; Kidder, Peabody & Co.; and Alex. Brown & Sons. 

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