Early in the pandemic, an allocator told an audience on the audio app Clubhouse that he never invests with a new manager without doing an on-site visit; he said he needs to look the manager in the eyes before he commits capital. Egging him on, I asked what he would do if the manager had no physical office. He said he would never invest with such a manager.
I’d like to think that this never-ending pandemic would have revealed to him and his cohorts the shallowness of such orthodoxy, but a recent survey shows that though allocators are fully prepared to transition to a hybrid of in-person and virtual meetings, only about a quarter said they had allocated to a new manager without physically meeting that person.
Granted, the survey was completed in August 2021, but if 18 months of a global pandemic couldn’t change allocators’ minds, then I would not expect Omicron to be the catalyst.
I take this dogma as further evidence of what I’ll call Calvello’s Law — namely, that the investment management industry will adopt technology at a pace three times slower than any other knowledge-based industry. Just as we fetishize the investment narrative, we fetishize the site visit.
And as surely as advanced machine learning is revealing the hypocrisy and weakness of the narrative fetish, technology is exposing the irrelevance of the physical office visit.
In fact, technology is challenging our very understanding of what constitutes an office.
Yes, I’m talking about the metaverse. And by metaverse I mean a place (much as the internet is a place) that blends the real and virtual worlds and is inhabited by digital twins of people, places, and things. The metaverse often uses significant elements of virtual reality, augmented reality, artificial intelligence, and other relevant technologies to create a virtual world.
Of immediate interest to me is that the metaverse fundamentally disrupts our concept of “the office,” work, and interpersonal interactions. Specifically, it provides the opportunity for asset managers, especially smaller managers with distributed teams, to create their own virtual offices with avatars of team members and workspaces to support various and changing business functions (e.g., trading, research, recruiting). Managers could use these “places” just as they would use physical offices: to meet, talk, and collaborate in real time on all sorts of projects using a variety of tools and apps.
And, yes, managers could certainly host face-to-face meetings with allocators, where allocators could observe team interactions, speak with team members individually, and tour “the office.” Managers could even hold virtual client conferences in wonderful settings (how about the Santa Caterina on the Amalfi Coast or the Langham in Shanghai?), but without the costs and carbon footprint.
To be clear, the metaverse is not just Zoom on steroids; the metaverse is the antidote to Zoom (and to those too-long online webinars — does anyone ever watch the recordings of these things?). Whereas Zoom is video-based and interactions are limited to speeches, sharing a screen, and chatting, the metaverse removes video entirely and replaces it with a virtual 3-D reality and spatial audio. Participants are no longer just faces on-screen (am I only the only one who thinks, “I’ll take Paul Lynde for the block”?). They are animated avatars, complete with eye-tracking and hand motions, fully engaged in a variety of structured and ad hoc “physical” activities in a virtual environment that is more than an exact copy of a static physical office — all in real time. Goodbye, Zoom fatigue.
The metaverse offers managers and allocators significant benefits, the most immediate being employee health. More generally, it reduces turnover (a Qualtrics survey shows that about four in ten millennials and Gen Zers say they’d quit their jobs if asked to come back to the office full-time), which in turn reduces expenses, ensures a stable corporate culture, and perpetuates corporate memory.
The metaverse also expands the talent pool because a manager can now hire candidates from around the world (including those whose disabilities might limit or prohibit their access to a physical office), improves productivity (work can get done in different ways with new tools), encourages social interactions between team members, and provides a new degree of flexibility (a manager can create different rooms to fit the changing needs of its business) while reducing fixed and variable costs (e.g., rent and travel) — all of which increases the likelihood of the manager creating better investment outcomes for its clients.
There are the usual technological challenges associated with the metaverse, including privacy and security issues (just because we interact in a virtual world does not mean there will not be virtual bad actors), cost (although phone makers are already including augmented reality capabilities in new phones), access to the required hardware and technology (e.g., VR goggles and motion capture gloves), and fast and reliable internet connectivity (because the metaverse is a graphics-heavy shared virtual environment).
And the asset management industry’s adoption will likely still be slow because of the general fear that new technology will be hard to use and because some people will perceive the metaverse simply as a place for gaming.
But, though it might take years for it to reach its fullest expression, the metaverse is already here, albeit in a nascent form.
Accenture has partnered with Microsoft to create the Nth Floor, “a mixed reality experience that enables people to interact with each other in person, regardless of geographic separation.” JPMorgan opened up a virtual lounge in Decentraland, where users can buy virtual plots of land with nonfungible tokens, or NFTs, and make other purchases using cryptocurrency (although I’m not sure the jpeg of Jamie Dimon hanging in the lobby is available for sale).
Meanwhile, organizations like PwC, eXp Realty, and Stanford University are using VR firm Virbela’s technology to build custom immersive workspaces. I took a demo with Virbela CEO Alex Howland and found it to be an effective medium for communication and so easy to use that even the most recalcitrant allocator would quickly come to find it a beneficial alternative.
Like corporate giants such as Disney, Nike, Walmart, and Microsoft, both incumbent and emerging managers will certainly embrace the metaverse in time. Some of the more progressive might go so far as to use cryptocurrency to buy a land NFT in a blockchain metaverse where they will eventually build their offices. Soon managers will be telling allocators, “If you want to look me in the eyes, put on your VR headset.”
Game on.
Angelo Calvello, Ph.D., is co-founder of Rosetta Analytics, an investment manager that uses deep reinforcement learning to build and manage investment strategies for institutional investors.
