The digitalisation of portfolio construction – Part 1

Julien Jarmoszko

After spending a year interviewing leaders in the asset management industry, as well as their suppliers (such as market data vendors and technology contractors), the main finding was that digitalisation is driving portfolio construction in two distinct directions. First, which will be the main focus for this chapter, is the arms race to keep the alpha generation potential ahead of ones peers. This is underpinned by significant investments in infrastructure, in new portfolio construction techniques (using machine learning, for instance) and much attention on execution so as to capture a series of “micro alphas”. This alpha is decaying fast and requires systematic financial investment to be replenished. Let us call this first group the “alpha chasers”.

Second, which will be the focus for our subsequent chapter, is an increased emphasis on the client fit with market returns. This is the quest for mass customisation that is being delivered by both new entrants and existing players. We will call this group the “customisers”.

This chapter will examine the alpha chasers will by reviewing some of the technology enablers such as the new datasets and databases architectures, enabling