Dean Chisholm has been at Invesco for over 24 years, having joined in Hong Kong in 1996. This was only the last of his several corporate endeavors but ran the longest, and he is retiring as of December 31.
As longstanding COO for Asia at the $1.2 trillion asset manager, Chisholm has been at the forefront of change in technology and operations. He has been a visible leader in the buy-side industry, serving on many association bodies and as a de facto spokesperson at many events.
He’s been a reliable source of insight about buy-side workings for DigFin, so we wanted to get his big-picture perspective. Technology seems all-encompassing now. What’s really changed in the quarter century since he’s been at Invesco?
In a light-hearted conversation, Chisholm says less has changed than people might think – but predictive analytics may be what saves active managers from obsolescence.
Chisholm’s career goes back to the 1980s when he worked at Coopers and Lybrand, what is now PwC. Telephone calls had to be booked.
“People gave you instructions by mail, and you would telex back short reports,” he said.
“I’m not totally convinced connectivity has led to productivity. It has led to constant communications regarding the same thing.”
More wistfully he recalls pre-smartphone, it was the norm for people to turn up at pre-agreed meetings. “If you went to meet someone for a drink, they’d turn up.” (O.K. Boomer!)
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Nostalgia aside, it’s notable that some of the old-fangled tech is still around, and that’s not so good. In the 1990s, settling a transaction was done by telex because fax was deemed insecure. Electronic messages are far superior.
But in retail funds, some distributors today still insist on processing subscriptions and redemptions via fax. “Which tells you what you need to know about retail distribution,” Chisholm said, noting it’s a fragmented industry ranging from small brokers too cheap to go electronic all the way to cutting-edge platforms like Ant Group.
The front office, the trading floor, used to be entirely driven by voice. “Squawk Box” might be a CNBC chat show, but squawk boxes used to be how brokers upstairs communicated with dealers downstairs: by shouting bids and offers through a pipe into a speaker. The dealers would phone back if they were interested.
“You could tell who was a dealer because his head was crooked from holding the phone against his shoulder,” Chisholm says. “Today dealers mostly don’t talk. Trading is automated, and the role of the dealer is to look at data and understand it in real time.”
Making money is different nowDean Chisholm, Invesco
Twenty years ago, asset managers were all active and even big markets like U.S. blue-chip stocks were “less perfect”, as Chisholm puts it. “Making money is different now.” Although some markets continue to be inefficient, notably big markets like China and India as well as niche ones, the trend is towards high efficiency, with passive instruments and ETFs dominant. “There’s more ETFs for the North American markets than there are securities,” he said.
The funds industry has responded by reinvigorating the old notion of balanced funds and turning these into “solutions”, combining different asset classes or investment factors to achieve a desired outcome.
Alternative investments remain a growth industry because investors want either portfolios that are hard to replicate, or have less information so a fund manager can find an edge. What constitutes alternatives has come and gone, but the search is the same – with alternative data now the vital ingredient.
“Data’s always been floating around but five years ago the low-code technology revolution transformed what we could do,” Chisholm said. The vast ballooning of available data and the ability to store it in the cloud has industrialized data-driven investing – to the detriment of conventional research.
What’s new isn’t the concept but the ability to scale data and use analytics from machine learning to generate an edge. The biggest difference is that by scouring the internet for enough data sets, an analyst can get ahead of the game, suggesting active management has a robust future.
“Enough data can become a leading indicator rather than a lagging one,” Chisholm said. “You can actually begin to predict company sales figures.”
Before the information revolution, human investors sought such advantages.
“There was a hedge-fund manager who owned a flat in Pokfulam, overlooking the harbor and the port,” Chisholm said. “He’d spend two hours each Sunday sitting on his terrace with binoculars, counting the container ships in order to figure out the China trade balance.
“There’s easier ways now to do that. The internet gets you a lot of data.” But the game itself is the same, with data, speed, and analytics the path to active fund managers reestablishing their relevance against the passive onslaught.
COVID and collaboration
The pandemic has led to the biggest upheaval in the asset-management industry. Working from home has forced a massive digitization across processes.
“Even the Japanese are pushing for digital chops,” Chisholm said. “It’s mad to have people walking around searching for someone with a chop and hoping they’re in.”
COVID has also accelerated a dematerialization of records and other paper documents, much to Chisholm’s relief: records take up a lot of space in high-rent Hong Kong.
“Offices will be much more about collaboration,” he said.
The Zoom call, that great symbol of 2020 life, is not without precedent, however. Chisholm notes that firms have used virtual conference calls but they involved large, clunky and expensive machinery. Now people can chat over their mobile phone.
But he sees working from home more as a democratization of the practice. “Work from home has always been there for some people,” he said. “No senior executives did nighttime overseas calls from the office.” They had the luxury of being able to do that at home while the junior staff needed to rely on the office’s long-distance lines.