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Industry Voices

Commentary: What investors can learn from watching the World Cup final

Clare Flynn Levy

The last time England was this excited about a World Cup was almost 20 years ago, in the summer of 1998, in France. They entered the finals with the so-called "golden generation" hitting their prime, including David Beckham and his famous Manchester United cohort. Little did fans know that another star, Michael Owen, was waiting in the wings, bursting onto the scene with a wonder goal against Argentina. It was to no avail, but it was the last time England really competed before they were left behind by a footballing revolution … until this year.

I know this because long before my colleague Chris Woodcock joined our fintech firm, he played professional football in England. And, no matter which season it is or major event is midcompetition, sports is something we talk about every day in our office. Just as competitive athletes seek constant improvement — not only through practice, but by examining and re-examining their patterns of play — professional investors are now embracing data analytics to become fitter, stronger, better disciplined and, one hopes, less prone to mistakes.

The rise of 'soccernomics'

England made it to the semifinal of the World Cup this year, for the first time since 1990, and that is down to the transformation English football has undergone in recent years. Most observers of English football would cite as a turning point the appointment in 1996 of a then little-known Frenchman, Arsene Wenger, as the manager of the storied English club, Arsenal. It became clear upon his arrival that he had inherited a troubled squad, yet one that could still succeed at the highest level.

Armed with a degree in economics, Mr. Wenger had other ideas about how athletes should develop. He advocated a raft of radical approaches such as training twice a day, resting properly, no alcohol, eating well and taking dietary supplements. As obvious as all that sounds today, prior to his arrival, a typical day in the life of a footballer would involve two hours of training in the morning, a lunch of lasagna, and then off to the golf course for a full 18 holes and possibly a few pints of beer thereafter.

All of Mr. Wenger's players soon became known for their athleticism and Arsenal's dominance of the English game followed. Mr. Wenger's ideas spread quickly and it wasn't long before players became teetotalers who experimented with Pilates.

Mr. Wenger's arrival also heralded a scientific revolution in the game.

By 2009, most Premier League teams were blanketing their stadiums with player-tracking cameras and had at least two full-time data analysts working with players and coaches. In 2012, Arsenal spent $4 million on performance analytics; inspired by the famous "moneyball" movement in baseball, the era of soccernomics had begun in earnest.

Fast forward to today, and Manchester City Football Club now has at least 11 data analysts working with players and scouts. At the moment, players in the World Cup are monitored in every training session as well as during matches, with their behavior, specifically their sprint power, continually assessed for signs of fatigue.

Active fund managers should take note

In the active fund management world, we are where football was 20 years ago: the revolution is upon us, but the transformation has only just begun.

Quantitative funds have been beating fundamental investors because they have codified their processes and removed the opportunity for many of the simple mistakes humans make.

The next generation of active fund managers must take a similar path in mitigating bias, and they need not go so far to see major improvements.

Data analytics can now be used to help professional investors continuously improve their game, too, by showing them what's working and what isn't about their investment processes.

We are all aware that an investor's job is to make the best decisions possible, and we're equally aware that the context in which we are making those decisions affects their quality. Today, very few portfolio managers actually analyze in any sort of useful way which sorts of decisions they are best and worst at, and in what contexts. That means they are looking at past performance as the measure of their skill, and using it as their only guide toward future improvement; like football teams basing their future play on the scores of their last few games, as opposed to on the stats about what each player is actually doing on the field.

However, asset owners and allocators have started hearing from certain leading managers about how they are now using behavioral analytics to sharpen their processes — and achieving meaningful performance improvement. This "behavioral alpha" is a clear and effective point of differentiation.

These managers can prove that they are less prone to mistakes, while retaining the capacity for complex thought, inspiration and intuition. Those who are not willing to adopt these new practices are destined to see their talent buried under a heap of errors, and investors will rightly look to passive or to quant funds for more consistent performance.

Time to get technical

This World Cup has been the most technical ever. Those on the pitch have been shown to be the most athletic, studious and well-prepared players to have ever played the game, so much so that even the game's star players such as Lionel Messi and Cristiano Ronaldo have failed to rise above their peers.

Despite the dystopian narrative now ascendent in the asset management world, fund managers have it in their power to deliver the same.

They can embrace both the data and performance analytics revolution that is before them. If they treat themselves like professional athletes, and choose a path of continuous improvement, the robots will remain on the bench.

Clare Flynn Levy is founder & CEO of Essentia Analytics, London. This content represents the views of the author. It was submitted and edited under P&I guidelines but is not a product of P&I's editorial team.