Many thanks to Clare Rhodes, Managing Director, Articulate Communications for hosting this podcast series. Here is a link to Episode 2 of the series - Technology Strategy and Business Performance in the Digital Era (August 22, 2018) where the podcast series was originally published.
Originally published on the Thomas Murray website on August 20, 2018 Conversation with Paul Rowady, Director of Research, Alphacution Research Conservatory What is Alphacution? Alphacution is the first digitally-oriented research and strategic advisory platform focused on developing a centralized "market intelligence asset" by modeling, measuring, and benchmarking technology spending patterns, and the operational impacts of those investment decisions. The Alphacution platform is specifically designed to deliver an empirical and quantitatively-backed perspective on the effect of financial services industry spending for an institutional client network. This mission starts by modeling individual companies - banks, asset managers, hedge funds, solution providers, and others - using publicly available data. Our model library currently consists of more than 250 such companies. From there, sector composite models - like global banking, IT services, and asset management - are developed by aggregating individual models. Ultimately, sector composite models come together to represent the full view of the largest parts of the financial services industry. Where data on technology spending and other operational dynamics are not available, [...]
Clues... At it's core, this is much of what we are ever doing as a research and advisory operation: Looking for clues. Ideally, we are looking for the kinds of clues that recur as patterns. And then, tell the stories from those clues and patterns. (Better yet, if we can devise a mechanism to systematically discover more clues and more patterns with regularity, then we will have developed something quite valuable. But, I digress...) So, it was with great fascination that we discovered one of the next important clues; some evidence of the nature of transformation in the trading and investment world - and that which is indicative of so many other sympathetic movements in the broader financial industry. This is the falling of dominoes that we often refer to. Here's the gist: Quantitative methods are set to pervade much more of the traditional asset management community and a broader cross-section of the strategy spectrum. Likely more than expected. Reason being: Fee compression renders traditional investment processes too expensive and [...]
Our first podcast! Originally published on the Articulate Communications blog, August 16, 2018... Many thanks to Clare Rhodes, Managing Director for hosting this discussion.
< Originally published by Tom Groenfeldt, Contributor, Forbes - July 31, 2018 > On its way to eating the world, software is eating up bank IT budgets, according to Paul Rowady, CEO of the consultancy Alphacution. Marc Andreessen, the venture capitalist, is the author of the famous quote about the general rise of software. Rowady, who is developing sophisticated models around finance and technology, sees software eating up IT budgets and crimping spending on hardware at banks. He thinks that compliance is to blame, something he plans to look at in more detail in a future study. “Going back a few years I saw software needs crowding out hardware needs, and that led to the adoption of cloud and infrastructure as a service (IaaS). There is no off-the-shelf solution for enterprise-wide compliance, so a lot of budget went to that and couldn’t be used for other needs.” Compliance presents a challenge for big banks. “A lot of these larger players were loose conglomerations of businesses that had been bolted together for [...]
Exchange-traded funds (ETFs) may have their critics, but with nearly $3.5 trillion in total value represented by over 1,900 unique funds as of June 2018 (according to the Investment Company Institute - ICI), this segment of the market has grown faster and is now larger than total assets under management (AUM) of hedge funds (which BarclayHedge estimated at nearly $3.0 trillion for Q1 2018). Success is always the sweetest revenge... Sure, the naysayers point to numerous complexity factors - like variance in replication methods, tracking errors, liquidity issues, exotic-exposure risks, and others - to make their cautionary case and to send up warning flares to novice investors, but the blunt fact of the matter is that the well-designed, cost-efficient ETFs have had a profound impact on the financial landscape. That the downward trajectory of fees with competing financial products (like hedge funds and mutual funds) and the dramatic shift in asset allocations toward ETFs are among the most commonly cited attributes of the shifting landscape is obvious to most by [...]
The incumbency of incumbents continues... This play has been well-established in the hardware and technical infrastructure arena for banks. And, for students of this game, the drumbeat of clues has been steady in the software solution arena for all types of financial asset-handlers, as well. However, with the $1.45 billion acquisition announcement of Eze Software Group by SS&C Technologies Holdings, Inc. (SSNC) on July 31, 2018 - an event that comes a mere 11 days after State Street (STT) announces its acquisition of Charles River Development (CRD) for $2.6 billion - it is clear that the turf war in what Alphacution calls "Big FinTech" has heated up to a new level of intensity. Here's why: There's a greater chance of controlling the "means of production" - the toolbox for trading and investment workflows - from the middle than from the front or the back. Yes, at-trade solutions like order and execution management systems (O/EMSs) are quite sticky, but these latest maneuvers with CRD and Eze are much more than that. [...]
Right out of the gate, this story might emit a whiff of last year's news. Maybe. But, that sense would only last until you realize that this is also a template for improving predictions about future events. And, that kind of predictive power relies upon the bet that more markets and opportunities are becoming winner-take-all in the digital era... (Hint: As the functioning of markets - and other economic opportunities - become more "digital," a single leader can emerge in that market. This is how we end up with the "FANG's" - Facebook, Amazon, Netflix and Google. It's also how US equity markets end up with ~80% lit market-making flows being split between Virtu and Citadel. Here are some facts to fill in the background: In the three years beginning 2006, the Timber Hill market making unit of Interactive Brokers Group (IB) had an annual revenue run rate of around $1 billion, peaking at over $1.3 billion in 2008. By 2017, Timber Hill's revenue run rate had declined 94% to [...]
William Shakespeare wrote: "All the world's a stage, and all the men and women merely players." It turns out - more so now than ever before - that there is a business equivalent to this famous line from Act 2 Scene 7 of Shakespeare's play, "As You Like It." The difference, however, is that the "stage" in the current context is known as a platform. And, with each passing day, the strength, agility, intelligence and speed requirements of current financial platforms tend to increase. Putting our key points up front, what we are going to emphasize as we make the case for the validity (and urgency) of this opening salvo are the following: The ceaseless march of innovation, competitive forces and exogenous market factors dictate that players in the modern financial services industry evolve from their initial proprietary technology bias to an expanded supply chain strategy, with focus on certain foundational categories of technical functionality. In other words, for a majority of players, their are certain core technical components that [...]
"Pay attention to what I say, not what I do..." Let's return to the bonus chart slipped in at the end of the recent post @DeutscheBank: Three-Card Monte and Other Confidence Games (For maximum context and extra credit, you can pick up the thread about Deutsche Bank from the beginning in March 2016 here). Bottom line: We are fascinated with the idea of detecting the impacts of the IT outsourcing deal that DB and HPE entered into in early 2015. The main questions that keep coming to mind are these: Is this deal a template for other large banks? Does it save money? Or, is its value to be found in other metrics, like enhanced performance or boosts in innovation? And, based on the level of transparency provided by DB (which is one of our best bank models), can we even detect the impacts of this arrangement? The answer to this last question is what brings us to this post... Right up front, we can say, yes - generically, speaking [...]