Leveraging Research in Investment Management

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Monday, January 10, 2022 / 11:10 AM / by Akin Adeniyi, CIPM / Header Image Credit: Fredrikson & Byron


Quite a bit goes into the investment process, and ultimately the decision-making.

As a practitioner and teacher, I get this feedback often the research function (buy side essentially) around us could achieve far more with some consciensious upgrade. Ten years ago I had the privilege of hosting the entire management team of this firm in a 4-day, intensive (really hands-on) training on portfolio management. It was technical and with the benefit of hindsight now, all the Excel worksheets and modelling must have lost some delegates during the introduction of the Markowitz algorithm deployment as a base case for understanding weighting and optimization.

Indeed we got into that familiar debate about the extent to which managers should go, or rely on theories in decision making as opposed to what obtains in practice (which was purely unscientific). That was the point the CEO's countenance could no longer hide his disappointment as well as displeasure with his team. I recall vividly his rather terse question to his CIO particularly addressing how the portfolio management team then had been coming about their recommendations at their committee meetings. That was a tensed moment that seemed like eternity.

But then again the situation is not one to be wholly blamed on portfolio management, as the team only feeds from the output products from what I've always believed and taught is rather the most important factor in product development and management - research. The quality of research is what separates the boys from the men in investment management but I continue to see less and less premium/importance placed on this function especially during my due diligence and evaluation procedures for manager research and selections.

Such a humongous whole lot rests on research for the best outcomes of the firm - from benchmark and security selections, to product design/strategy, portfolio weighting, client reporting/communication, and performance evaluation, these and more actually draw their strengths from the quality of research work. Research is that solid foundation required to support the entire structure of the money management business. Whilst it may not necessarily all be Quant, there are yet the basic minimum requirements expectations that make the function not just plain theory, but a whole load of fun!

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Theory therefore actually meets practice in our discipline when we insist on the rule of analysis, recommendations, and actions. Actions are bound to be most appropriately aligned with investors' objectives when the analysis has been thorough.

I encourage we move things around a bit in this function for greater results this year and beyond.

 

About the Author

Mr. Akin' Adeniyi, CIPM  is the President & Chairman of Council of the Association of Corporate and Individual Investment Advisers (CIIA). He is also the Chief Relationship Officer (CRO) of KingsThrones Limited


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