Roughly 40 years ago it took an entire investment team the better part of a day to test out an investment model using a few slide rules and several sheets of paper. Now, the same task can be done by one investor on her phone while waiting to board her plane.
Additionally, while the idea of a U.S. money manager investing in a Hong Kong-based company was uncommon the year Pensions & Investments was founded; nowadays it's relatively commonplace.
Advancements in technology over the last four decades have significantly changed the way portfolio managers, traders and money managers conduct their businesses. The evolution of computer technology, the emergence of the Internet and the introduction of analytics software turned stock trading from a pen-and-paper-based process into a fully automated one. These technological advances also paved the way for international investing and an increased need for compliance.
Because of technology, money management has become a massively complex, global and 24-hour enterprise. But also because of technology, money managers can handle these increased complexities.
“There has been a sea change, it's been dramatic,” said S.P. Kothari, deputy dean and Gordon Y Billard professor of management at the MIT Sloan School of Management, Cambridge, Mass. “The landscape is now totally different.”
The shift from a paper-based industry to a computer-based one slowly and steadily enabled money managers to engage in more sophisticated trading, seek out more complex pricing information and subdivide different types of investment strategies.
“The history of the industry over the last 40 years can be summed up in three words: steady incremental specialization,” said Kenneth L. Fisher, founder and CEO of Woodside, Calif.-based Fisher Investments. “And the reason for this specialization is technology.”
For more from Mr. Fisher, see a video of him discussing the role of technology in the evolution of investment management
The reason specialization was steady and incremental was because computer-based technology didn't change things overnight. When computers started to appear in offices, they were large, cumbersome devices that people didn't know quite what to do with.
“I was responsible for buying our first PC back in 1983. It was in DOS (disk operating system),” said C. Hayes Miller, head of multiasset North America for Baring Asset Management, Boston. “In order to make the machines do anything, there was a bottleneck at the programmer.” This was because the programmer knew nothing about investing, while the investors knew nothing about programming.
Once computers became more commonplace, and once traders learned how to use them, they paved the way for a faster, more paperless, automated trading culture. Networked personal computers eventually led to the Internet, which has revolutionized the speed and accessibility in which information can be retrieved and analyzed.
“If you were an investor in the "70s, you picked stocks based on basic analysis,” said Mr. Kothari. “When quantitative investing came out, it came out because of advancements in technology. Being able to process a huge amount of data about stocks and securities hugely influenced how people started investing.”
Technology provided readily accessible databases of market-index returns and returns on different categories of various investment approaches, which enabled money managers to quickly back-test strategies under various economic and market conditions over long periods of time and to compare historical returns across strategies in order to get a feel for potential risks and opportunities. Information was readily and quickly available, and the ability to analyze that information became fast and easy.