Long-term investors already have a tough job, and their
offices are usually understaffed and lacking in resources. As a
result, they also must grapple with inferior technology. But it
doesnt have to be this way. Technology vendors can serve
these offices and make their clients lives easier
if the vendors are willing to listen to them.
Over the past three years, I have surveyed 250 long-term
investors to find out the essence of their investment
processes, the technological functionalities they needed to
make their working lives easier, and what they were doing about
it or not doing, as the case often turned out to be.
My questions often started broad and then went deep. As a
technologist my angle has always been solutions, so it was
disheartening to hear how many problems persisted through time.
Decisions about asset allocation or risk management systems
were ignored, delegated to a consultant, or done in-house using
Microsoft Excel as a short-term crutch that eventually became a
permanent prosthetic limb. These professionals were also
frustrated that their offices had little to no ability to
These frustrations are symptomatic of the environment and
governance of long-term investors offices. These offices
are often undermanned; on average, endowments and foundations
have one full-time investment employee per $435 million of
assets, according to the 2015 NACUBO-Commonfund Study of
Endowments. (The stats for public plans are worse; they
dont have time to do anything but focus on investments).
Being understaffed is the single biggest problem these
investment offices have. Theyre also hamstrung by
inadequate technology budgets.
I created a series of surveys to get a glimpse of their
technology landscape. For the first phase, I focused on
document management technology. My findings were puzzling. On
average, the respondents spent $19,000 per year for that
technology, had a document repository containing 27,000
documents, incurred a cost of 72 cents per document per year,
and had a level of satisfaction that was neutral (neither happy
nor unhappy, with a fatter unhappy tail).
The survey also indicated that the respondents mostly relied
on linear file structures (using local or cloud-based servers
to store documents, which are then organized by folders and
subfolders) and complained about the complexity of manual
tagging systems for saving these documents. They also mentioned
the difficulty of finding the stored knowledge.
Moreover, it appears that many of the latest technology
concepts like big data techniques, the new wave of GUI
design, machine and deep learning, and natural language
processing have not reached investment offices. I am
sure investment offices are aware of many of these but simply
have not had time to look at their utility for their function.
For one, it seems the old-tech vendors (defined as firms
conceived pre-2010) have stopped investing in innovation for
the long-term investor market, as is apparent from the lack of
representation of these techniques within their tool set.
It would seem an opportune time for new-tech vendors
(post-2010 startups) to make a run at the established companies
to capture market share. That hasnt happened either. They
have had their own set of problems. Senior staffers for
long-term investors say new-tech vendors pitching their wares
try to sell out-of-the-box products without listening to the
investors about what they need. They simply dont
feel for our portfolio of technology headaches, as one
investment staffer put it. These vendors have to stop believing
that their product is so good that the clients will simply show
If we assume that all needed investment office functionality
is already identified and that hundreds of vendors already
cover these needed functionalities, it seems reasonable to
assume that the long-term investors could use a unifying
platform. But all parties involved need to get on board.
This will require long-term investors to embrace innovation
(e.g., accept startup or new-tech risk). Too often they fall
back on the no one gets fired for hiring IBM
excuse, whoever the IBM equivalent for that functionality may
be. Thankfully, some innovative investors have started to lead
Long-term investors can also do a better job at creating a
culture of change. The biggest reason for failure in technology
projects is failed implementation and the lack of adoption by
The changes new-tech companies need to make are simpler:
Listen to the markets and continue to focus their talents on
delivering elegant solutions based on the right specifications,
but dont get too greedy on price or be driven by
valuation. The old-tech firms will have a harder time because
they will need to go outside their comfort zones and innovate.
But they can be more open to the tidal wave of burgeoning
new-tech companies. This will require them to provide a
formalized and transparent application program interface (API),
openly available to all.
Will all these players act in concert and march together
toward a world where all players interests are aligned
and the clients technology needs are met? The odds seem
against it. But in an era of underdogs scoring huge upsets
Brexit, the Chicago Cubs, Donald Trump maybe
someone will decide to make the changes that can lead
investment offices into the modern era.
Ken Akoundi is the founder and senior editor of Investor DNA, a daily
newsletter for long term investors, dedicated to readings at
the interface of investments and technology.