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  1. Tuesday, December 6th, 2016
    the investment ecosystem

    I first wrote the phrase “the investment ecosystem” in one of these postings more than eight years ago.  It has appeared often since then and, when counting emails, presentations, and meetings, the total number of times I have used those words is well into the thousands.

    In my consulting business, I work with a variety of investment organizations, including asset managers, institutional asset owners, investment advisory firms of various kinds, research organizations, consultants, etc.  By doing so, I get a multidimensional view of that ecosystem and of its evolution over time.

    We are at an important stage of that evolution.

    Over the past several decades, the investment industry has thrived.  Despite some significant hiccups along the way, the market environment has been relatively benign, with a secular trend of disinflation leading to the low interest rates and generally high equity valuations that we enjoy today.  Globalization, favorable demographic changes, the ... continues

  2. Thursday, October 20th, 2016
    watching the flows

    It has become a monthly ritual to scrutinize the amount of money gushing out of actively-managed funds and into passively-managed ones.Morningstar | Here’s the latest monthly summary from Morningstar.  Asset managers are rightly concerned about the persistent trend.  It feels like twilight, following four glorious decades of managing other people’s money.

    I’ll leave the dissection of that to others, at least for now.  (I will soon be writing a white paper on critical issues for asset managers to address in today’s environment, which will be distributed via my “investment ecosystem” listThe Investment Ecosystem | Sign up on the site to receive the white paper.).  Instead, this posting considers some other critical aspects of asset flows.

    As the available research shows (and anyone with experience in the business knows), flows follow performance.  To varying degrees, it is true in every part of the investment world.  Individuals and ... continues

  3. Wednesday, September 21st, 2016
    in the company of women

    The first analyst day I attended was at the Vista International Hotel in the World Trade Center.  When I walked out into the hall during a break, there were long banks of pay phones jammed with analysts delivering the bad news to trading desks and clients.  The price of Control Data stock probably never saw that level again, but I was so clueless that I didn’t have any idea what had happened.

    The other thing I remember from that day was standing behind the rows of analysts in the ballroom and seeing a sea of gray and blue, with two splashes of color, one red dress and one brown.  There were a few other women in attendance as well, but they had adopted the corporate colors of the time.

    At the hundreds of conferences and large meetings I’ve attended since, there has rarely been more than ten or fifteen percent of the attendees who were women.  Last week, the shoe was on the other foot at a CFA Institute conference, “Alpha and Gender Diversity: The Competitive ... continues

  4. Wednesday, September 7th, 2016
    the tests ahead

    In the aftermath of the financial crisis, there was a great hue and cry about how we had become slaves to our models and that they had proven to be imperfect — tragically imperfect — masters.

    It is, then, quite ironic (and very surprising, at least to me) that we seem to be more reliant on those models than ever before.  Well, perhaps not those models, but the new-and-improved ones that have taken their place.

    The investment business has gotten more quantitative and more automated, so that’s certainly part of it.  It’s hard to become more qualitative in your approach and more thoughtful about the proper context in which models should be used when you’re handing off much of the decision/execution process to machines.the research puzzle | Here’s a posting that considers “programmed” versus “nonprogrammed” decisions.

    The financial crisis was a watershed event for investment organizations, as you might expect.  Significant ... continues

  5. Monday, August 8th, 2016
    changing classifications

    In most of our endeavors, we seek to avoid ambiguity and are quick to classify people, places, things, whatever.  Those classifications make it easier for us to think in a shorthand way, taking some of the complexity out of the complex nature of everyday life (even while adding in the real possibility of errors in miscategorization).

    Of course, investors are champions at this activity, breaking down our holdings into asset classes and style boxes and buckets of this and that.  It all seems so precise and definite, but it really isn’t.  There are lots of gray areas made to look like black and white — and the lines are drawn looking backwards rather than forwards.

    Today’s classifications are soon to be out of date and, truth be told, the best money is often made by moving across the existing lines and into new territory, which is an anathema for those who like to plot out the landscape according to the current map and have carefully prescribed percentages of assets ... continues