For more information visit: www.incisiveworks.com
This digital experience is an Incisive Works product © 2022 Incisive Business Media (IP) Limited
CAPITAL AT RISK
Past performance is not a guide to future performance.The value of investments and the income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. IMPORTANT INFORMATION For professional clients only, not suitable for retail clients. This is a financial promotion and is not investment advice, nor is it a recommendation to buy or sell securities. Investment in any fund (“Fund”), where Collidr Asset Management Limited is the investment manager, may not be suitable for all investors. The Funds only accept professional clients or investment through financial intermediaries and or available in jurisdictions where such solicitation is lawful.Please refer to Fund documentation, available at www.montlakeucits.com/funds, for further risk factors and pre-investment disclosures (including the latest annual and
echnology can be a powerful tool to improve risk-adjusted returns for investors. Artificial intelligence solutions and big data analysis are helping
investment managers to enhance their decision-making, better monitor risk and improve returns for clients.
T
Collidr is well ahead of the curve in this regard. It has built a technology-enabled, flexible investment management platform that is optimised with the aim to deliver the best possible outcome for advisers and their clients.
In this Spotlight guide, we hear about the latest developments in financial technology and how Collidr is using them to build powerful partnerships with trusted advisers, offering tailored solutions that are designed to give their investors the edge in a variety of market conditions.
“Our technology and tools have been able to learn and deliver an edge in a statistically significant way, so they are producing real results and benefits”
scroll
TECHNOLOGY IN INVESTMENT
IN PARTNERSHIP WITH
For Professional Clients only, not for Retail Clients
Finding an edge
How technology is enhancing returns and improving customer outcomes in the investment industry
Funds powered by technology
xxxxxxxxx
xxxxxxxxxxx
Made to measure: a flexible offering for clients
Technology overview: Interview with Symon Stickney
semi-annual reports and the Key Investor Information Document (KIID)) before investing. The views expressed are those of the contributors at the date of publication unless otherwise indicated, which are subject to change, and are not investment advice. This material and its content may not be reproduce or distributed, in whole or in part, without the express written consent of Collidr Asset Management Limited. Issued in February 2022 by Collidr Asset Management Limited, 34 Southwark Bridge Road, London, SE1 9EU. Authorised and regulated by the FinancialConduct Authority, Firm reference number 713361. Collidr Asset Management Limited (a provider of asset management services) andCollidr Technologies Limited (a provider of technology and research services) (together “Collidr”) are subsidiaries of Collidr Capital Limited.
ARTICLES in this SPOTLIGHT:
For Professional Clients only
This digital experience is an Incisive Works product © 2021 Incisive Business Media (IP) Limited
The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.
he responsible investment market has taken flight over the past two years. The pandemic has prompted a wholesale reassessment among
policymakers, institutions and consumers of their relationship with the planet, and many investors have recognised the direction of travel, with flows into responsible investment funds soaring in 2020 and 2021.
The role of advisers in educating clients about responsible investment
SPOTLIGHT
MENU
HIDE X
‘It is about creating intelligence that can empower humans to make better decisions’
Symon Stickney explains how technology is solving problems and enhancing decision-making in the investment management industry
“Everything that Collidr is doing is applicable to the crypto universe because it will be a data-rich environment”
intelligence (AI) or blockchain to deliver better outcomes for clients. However, technology is not enough on its own – it needs to be used with skill to deliver the right results.
igitalisation is transforming many industries, and investment management is no exception. The use of technology in the sector is likely to grow significantly in the next decade, with more companies deploying tools such as artificial
D
Symon Stickney, founder and group CEO of Collidr, says there are two primary reasons why this sort of AI is proving effective: “Firstly, it is very efficient at solving single problems. Rather than seeking to improve every facet of our lives, which would be very complicated, we can take on smaller problems step by step.
Looking specifically at AI, this technology falls into two main categories. “Strong” AI is the sort that has a “consciousness” and is what many people will think of when asked about AI. Yet it is what might be called “weak” AI that has so much potential for the asset management industry today. This sort of AI can’t go away and learn a new language if you ask it to, but it can be implemented to streamline a business, improve outcomes, monitor risk, make investment decisions and analyse large data sets.
According to research by Accenture in late 2020, 95% of asset managers in North America believe their firm’s technology, data and digital capabilities will be key differentiators in 2025. But advisers need to ensure that the technology they are being presented with is really delivering value.
“It also helps with transparency,” he continues. “The more complex an AI-driven system becomes, the harder it is to demonstrate and deliver the transparency required.”
“Our technology and tools have been able to learn and deliver an edge in a statistically significant way, so they are producing real results and benefits,” says Stickney. “It must be possible to realise these things in a real-life environment. But that takes time to engineer and mature.”
For Collidr, the key has been to build adaptive systems that can be applied to different mandates, market conditions or client needs. Those systems need to be sufficiently flexible to adapt to conditions that might not even have been envisaged when they were designed.
And the better the data, the better the insights. “You need to use relevant data and collect, store and interpret it effectively,” says Stickney. “You have to have a really good calculation engine, plus strong capabilities in mathematical and statistical disciplines. You have to be able to do all these things really well before you get anywhere near trying to enrich that with intelligence.
“From there, it is about creating intelligence that can empower humans to make better decisions and enable people to spend more time doing the activities where they add the most value.”
There is always a need for some level of human involvement. For example, researching ideas, providing oversight and governance, managing relationships to help clients understand their investments.
Other mandates require greater human input. An actively managed model portfolio, for example, requires good qualitative research on the underlying funds. A combination of both people and technology therefore delivers a better outcome than technology alone.
Even technology can introduce bias into decision-making, so it’s important to monitor it closely and adapt as necessary, says Stickney. “These biases still need to be risk-managed and controlled. It's not just a question of kicking back and letting it do its own thing.”
The regulatory environment
However, he says that within these parameters, he is excited about the future and sees real potential for new technologies: “Blockchain and certainly digitalisation of portfolios is something we're really keen to spend more time in our R&D environment looking at and working on. We see strong growth in the use of technology across the sector.”
“Blockchain brings several key transformational things. It allows peer-to-peer transactions with the entire contract encoded in a smart contract, embedded in the transaction. The contract is pre-set so it doesn’t require a lawyer or a bank; it's all done instantly and very cheaply.
“The second part is that in a fully decentralised world, organisations are not owned by one person. In this world, owning and transacting in tokens also makes you a stakeholder. In many cases, that means individuals are part of the governance and can get an income stream from a share of the profits. There's an enormous network effect here. it completely transforms the notion of being a shareholder.
Looking ahead
“Blockchain technology also enables ownership of non-fungible tokens (NFTs). An NFT is basically a proof of ownership for a unique digital asset. The proof is on the blockchain. As the metaverse grows, every single item in the metaverse, from the digital ‘skins’ that kids are wearing to play Fortnight, through to the decoration of an office, art gallery or virtual home, will need to be bought through a digital version with proof of ownership.
“That creates value native to the internet in a way previously unseen. It's going to create a completely new parallel economy.
“A lot of real-world functions may also move to blockchain. Take the T+ system for equity settlement – it requires lots of people reconciling things endlessly and is hugely costly. The whole thing could just take place on the blockchain, which is an immutable ledger. Blockchain is also disruptive for companies that rely on being an introducer. Now people can transact peer-to-peer.
“Collidr is taking these disruptive changes into account when building its solutions. Everything that Collidr is doing is applicable to the crypto universe because it will be a data-rich environment.”
“You need a really good calculation engine, plus strong capabilities in mathematical and statistical disciplines”
Digitalisation of assets and blockchain are set to bring another revolution in how we invest, according to Heather Manners, non-executive director at Collidr
01 / 03
PREV
NEXT
02 / 03
03 / 03
Heather Manners
Non-executive director
“The language of financial services can be off-putting, and terminology around responsible investing adds another layer of complexity”
ambition and action to reduce carbon emissions. Yet advisers still report that relatively few clients ask how they can invest more responsibly.
t is clear that people care about climate change. From reducing energy consumption and recycling to protesting outside Parliament, there is no shortage of will,
I
Advisers need to step in to help them join the dots, she says. “For most people, a pension is something they pay into but not something they have an everyday relationship with, as they do with, say, going to the shops. Pensions aren’t very visible, so it's perhaps not surprising that customers don't always make the link between their pension and what it might be able to do on climate change.”
The publicity around COP26 raised the profile of environmental, social and governance issues, but also the role of finance and – specifically – pensions in helping to build a better planet. “There is a real opportunity both for advisers and for providers,” she says. “People may be thinking slightly differently now.”
The relationship advantage
Performance
Advisers are in a prime position to develop their clients’ understanding and help them see how their capital can make a difference. “They know their clients, can explain the key issues to them and answer questions,” says Pennells. “They can help them understand the impact of the decisions they're making today on the kind of world that they'll be living in tomorrow.”
Advisers have a vital role not just in helping their clients to navigate the often complex and jargon-heavy world of responsible investment, but also in helping shape their preferences. It may not be that clients aren’t interested, but that they haven’t been asked the right questions.
She adds: “It's about advisers really understanding what their clients want from their money, not just purely in financial terms but in terms of what they want their money to do – for their own standard of living, maybe for their family and for any legacy they leave.”
She believes there are particular difficulties in explaining engagement. Why is a responsible investment fund holding a fossil fuel provider, for example? It is important that clients understand why it might be better to hold a high carbon company and engage to help it change its practices than to sell out. Advisers have a crucial role in building this understanding among consumers.
It is often thought that there is a trade-off between financial performance and sustainability. This has been widely debunked, with studies showing that incorporating environmental, social and governance criteria can deliver financial benefits; both in corporate performance and in the performance of investment portfolios.
This was also uncovered by Royal London’s research with EY in 2020, which incorporated 2,000 different pieces of research in order to assess whether ESG affects performance. It explores the rise in responsible investing and what investors can expect from it.
02 / 06
01 / 06
03 / 06
05/ 06
“We use a completely interactive environment, with heavy use of data visualisation techniques to take complex mathematical frameworks and display them in a really simple, eloquent way”
the investment solutions of the past will work into the future is a risky strategy.
At the same time, the pandemic has prompted many clients to reappraise their lives. They may want to retire sooner, change career or start a business. Investment portfolios need to be responsive both to changing market conditions and the shifting needs of individual clients. Collidr aims to provide this flexibility to advisers through bespoke solutions powered by technology.
Symon Stickney, founder and CEO of the group, says: “Some use us as a research service, some to manage money through an investment management process, either model portfolios and/or our funds, while others will buy our technology on a standalone basis.
“Everything we do is tailored to a specific mandate that the advice firm gives us. We customise the solutions across the modules that we have inside the Collidr system to produce an outcome specific to that firm.”
“We needed to have a bespoke investment solution for our clients, who were mostly high-net-worth clients,” she says. “We had an investment solution of sorts within the firm, but we didn't feel that it was strong enough. Collidr ultimately became our investment department.”
he pandemic has brought about a period of significant change for investors. Technology adoption, the direction of interest rates and the changing geopolitical landscape will all influence the direction of financial markets, so assuming that
Collidr provides a service that empowers advisers to add value in front of their clients, say Symon Stickney and Paula Steele
The group takes a long-term, partnership-based approach, in order to help advisers address their investors’ changing needs. This is explained by Paula Steele, who was an early adopter of Collidr as an IFA, and who acts as a non-executive director for the group.
Working in partnership
Technology facilitates flexibility. Stickney says that clients could be “evangelically passive” one week and fully active the next. “Collidr's system has the capability to be all those different things. All the different modules allow us to adapt and change.”
Collidr proved particularly suitable because Steele’s client base was younger than that of many advice firms. Clients wanted portfolios that were risk-rated but more focused on capital appreciation.
“What Collidr gave us was the ability to know that the research had been properly done, that the portfolio has been optimised and that the portfolio wouldn’t change because someone had gone on holiday or had an off day.”
For Steele, this was a good way to increase the group’s productivity, decrease its risks and build an institutional architecture without the costs of recruiting and building it themselves. Stickney says: “The benefit for the firm is ultimately that they're able to reduce their costs, their risk, improve performance, enhance their governance and importantly also add to the proposition.
“At the point of sale, when working with investors, Collidr technology is able to be used directly, interactively, in sessions to demonstrate the value-add of the adviser's process and business as part of that solution.”
For advisers, Collidr aims to provide confidence. Advisers can know they are working with a professional, well-resourced firm. They have complete transparency on the portfolio day-to-day, each with their own unique front-end, displaying all of their portfolios.
The investor perspective
Stickney emphasises that the approach is tailored for individual needs: “The way that we build outcomes changes depending on the type of underlying customers for any individual adviser firm, both in terms of their objectives but also in terms of their risk appetite and the level of complexity they can tolerate.”
Steele says that the group’s interactive tools enabled her to show clients the risk/reward trade-off effectively, adding: “In a perfect world, for wealth preservation, all clients want exactly the same outcome: maximum return, maximum income, zero risk. With Collidr, the adviser is able to show their clients what wealth management really entails, to use the tools to help manage expectations properly.
“I can say: ‘I’d like a range for my capital appreciation client. I'd like a range for my wealth preservation client. And I'd like a range for the people who are going to drawdown.’ And I can have all of that without a problem because they will deliver within the same price for the client.”
For Stickney, it is about empowering advisers to add value in front of their investors: “We use a completely interactive environment to do that, with heavy use of data visualisation techniques to take complex mathematical frameworks and display them in a really simple, eloquent way. Advisers can interact in real time with their investors to help them tell the story the way they want to tell it.”
flexibility caption???? xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
“As their first client, Collidr enabled us to build a comprehensive investment proposition, allowing us to focus on our clients”
Paula Steele
“We’ve been hearing about what policymakers are thinking about, but there's not been any real clarity, which makes it hard for advisers to plan”
“Some firms will want to include additional questions within their existing and standard fact find”
This does mean that a majority are on board with the concept. Yet despite this, only half of advisers reported asking about responsible investment during their client fact-find and only a third raised the subject at client review meetings.
Those advisers that don’t speak to their clients about this topic may be missing a commercial opportunity, says Ryan Medlock, Senior Investment Development Manager at Royal London. “Customers’ attitudes are changing,” he says, highlighting that many would prefer their pension to be invested responsibly, if only they knew about the effect it could have.
All advice firms will be at different stages of the responsible investment journey, says Medlock. For those looking to take the first steps, he believes a good place to start is to discuss the issue internally and formulate a business-wide plan, aligning responsible investment with the firm's core values and beliefs.
In advisers’ defence, there are a number of elements that make it difficult to start a conversation on responsible investment. “Perhaps clients have never had a discussion about responsible investment, climate change, social issues, corporate governance or whether they've got preferences for electric cars,” Medlock says. “To bring something new into the conversation can be a challenge in itself.”
in this and the value of educating clients about responsible investment.
he finance industry has a vast role to play in encouraging the right behaviour from companies. Advisers shouldn’t underestimate their part
The headwinds
How to do it?
Symon Stickney, Heather Manners and Colin Leggett outline the innovations that lie behind Collidr’s range of funds
Montlake Collidr Global Growth Strategy UCITS Fund – since inception
Saving time and removing emotion forms the basis of the group’s Quantimental™ approach, which is used across the portfolios it provides for advisers. Improving outcomes and achieving incremental benefits, however small, can add significant value over time if executed in a disciplined, robust way.
“Through these quantitative processes, we're able to identify how an asset should behave in different market conditions,” says Stickney. “Once you understand the market conditions and how something should move, it becomes relatively straightforward to identify when an asset has diverged from where it should be. Any deviation can be investigated and action taken.
“Using technology is a way to ensure that investors get the outcome they anticipated at all times.”
As a result, technology can be a vital tool in analysing large data sets and in removing emotion from the investment process. For Collidr, this is the key to building, better, more robust portfolios.
Even the very best fund managers are fallible, says Heather Manners, independent non-executive director at Collidr and the former CEO and founder of Prusik Investment Management. “To some extent, fund managers are always hostage to emotion of one sort or another, whether that's bias, a formative early experience or prior experience more generally.
“In fund management, the first few years of experience can determine how a fund manager approaches risk, for example. And it's very difficult to lose those biases.” This has informed Collidr’s approach, where technology is used to help remove emotion from the decision-making process.
The Quantimental™ approach
By contrast, volatility has certain characteristics that mean it can be forecast more easily. Collidr’s Adaptive Risk Exposure System (ARES) can understand the volatility regimes of over 200 asset classes.
“We combine those into groups that allow us to detect changes of regime,” says Stickney. “Those changes can be a move from a high-volatility regime, for example, which can often be quite destructive for traditional asset classes such as equities, bonds and commodities, into medium-volatility environments, which tend to be quite positive for growth assets, through to low-volatility environments.”
Process in action
he human brain is brilliant and adaptable, but it has its limitations. It is generally not good at handling significant amounts of data and is also vulnerable to emotional decision-making.
The other important benefit of technology in a portfolio is to allow the analysis of huge amounts of data very quickly. Historically, this analysis has been done on tools such as Excel, but spreadsheets are both time-consuming and prone to errors. Symon Stickney, founder of Collidr, says: “We're doing something that would take a human days or weeks to produce, and we're doing that in several minutes.
“We're able to generate a lot of intelligence that can be pushed into the execution of portfolios.”
The team only focuses on those areas where predictions can be made with accuracy. For example, it is very difficult to forecast the long-term returns of an asset class with any degree of statistical significance, so Collidr doesn’t do it. “We don't use a lot of return forecasting because there's no statistical edge in it that can be exploited,” says Stickney.
Recognising when those transitions are happening allows portfolios to be rebuilt, reoptimised and ready for implementation ahead of time. Colin Leggett, investment director at Collidr, explains: “The most recent example of this process in action was when Omicron moved the markets and increased volatility. Our regime framework gives us the confidence to recognise that while volatility is picking up and there is activity in the market, it may not constitute a regime shift.”
The group saw a similar phenomenon when coronavirus first hit in 2020. At the time, the system alerted the team to a regime shift, which enabled them to implement the appropriate investment strategies for that new regime, to navigate this period of market turbulence.
Stickney says: “Having this type of adaptive framework allows you to confidently move between states and increase the probability of success.” Used well, this type of technology can create small, incremental advantages that add up to strong performance over the long-term.
Growth%
“Xxxxxx xxxxx xxxxxxx xxxxxxx xxxxxx xxxxxx xxxxxx xxxxx xxxxxxx xxxxxxx xxxxxx xxxxxxx xxxxxx xxx xxx”
Caption xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
“Through quantitative processes, we're able to identify how an asset should behave in different market conditions”
Source. Collidr/Bloomberg
“ Ensuring a ‘just transition’ is extremely important. We need to bring society with us”
Montlake Collidr Global Growth Strategy UCITS Fund (%) – since inception
Regulation is only likely to accelerate that growth. Jamie Jenkins, Director of Policy and External Affairs at Royal London, says that while the UK, US and Europe are at different stages, they are moving in the same direction. The priority from here is likely to be to create clear parameters around sustainability, to tackle greenwashing and to ensure proper measurement, so that progress is tangible.
Europe has taken an early lead, through the Sustainable Finance Disclosure Requirement and the Taxonomy Regulation. Its example has shown that as regulation grows more disciplined and coherent, the signs are that fund flows will grow.
the real deal. Yet the weight of evidence suggests that responsible investment is here to stay and will continue to grow. Greater regulation is certainly inevitable, with COP26 bringing a raft of new commitments on deforestation, coal and methane emissions.
s we saw in the previous section, there is a significant proportion of advisers who are unsure about whether responsible investment is
A
There is also increasing evidence that given clear choices, investors are plumping for the responsible option. Morningstar data for Europe shows that in the third quarter of 2021, ESG and sustainability funds drew in 57% of all fund flows.(1) This is a rise from 44% in the second quarter.
While these funds currently only represent around a quarter of the overall universe of products, they are 37% of fund assets, equivalent to EUR 3.3trn. More importantly, over 50% of new funds were launched as either ESG or sustainability funds, as fund groups rightly recognise that the universe for non-ESG funds is shrinking. This shows the power of a labelling system in helping to build consumer understanding and drive fund sales.
In the UK, no such labelling system exists, though one is likely to be coming down the regulatory pipe. But even without this support, there is growth. Retail sales of responsible investment funds in the first three quarters of 2020 were up by three and a half times compared to the same period of 2019, and 2021 looks likely to have set further records.(2)
Regulatory pressure
Jenkins points out that responsible investing is intimately connected with retirement outcomes – it seeks to ensure that we improve the environment for everyone, so people don’t live in a house that floods or in a world where their grandchildren’s future is unsustainable. “It is not an act of charity or selflessness. It is fundamentally important to all of us. Increasingly it is also being seen as a critical factor in getting good investment returns over the long term.”
There are other elements that are starting to emerge as the market becomes increasingly sophisticated. The drive to measure impact, for example, is becoming a vital part of asset managers’ offering to investors. It is not enough to want to do good; investors require tangible results. As disclosure improves, this is becoming increasingly possible and desirable.
Fundamental to our lives
>
<