The Future of the Investment Management Industry at
The UCLA Anderson School of Management
By Alan Adelman
– Senior Managing Director Angeles Wealth Management
The UCLA Anderson School of Management has long been considered one of the finest graduate schools in the world. The school is blessed with a diverse, highly motivated student body, hungry for knowledge while preparing for their future success.
Recently I had the privilege of moderating a ‘Financial Institutions Seminar’ for the school’s Masters of Financial Engineering Program (MFE). The seminar topic was: The Future of the Investment Management Industry – focusing on the role of indexing strategies and active management. MFE students, alumni and faculty attended the seminar.
The goal of the evening was to explore critical investing issues while bridging academic theory with applied industry best practices. The seminar’s keynote speaker, Ronald Kahn, Ph.D., is an industry friend and colleague who is the head of Scientific Equity Research for BlackRock. He is a well-known and highly regarded expert on portfolio management and quantitative investing.
Framing the Issue of Indexation and Active Management
Investment management in its application is in flux. For the past decade, there has been significant investment flow from active to indexed based investments, and this trend shows no sign of abating. At least three other trends are reshaping the business: Active management has become increasingly
competitive, erasing the edge that some managers had previously demonstrated; An explosion of data and analytics— big data and machine learning—is useful for active management; And the emergence of a smart beta strategy that carves out successful active investment approaches and packages them in transparent, rules-based strategies with low fees is another. Pure alpha labels the element of active returns beyond smart beta. Only active managers can deliver pure alpha.
Dr. Kahn’s Takeaways
As a result of these trends, Dr. Kahn expects investment management to evolve into three (possibly four) separate endeavors: indexing, smart beta, pure alpha, and a potential fourth effort looking beyond returns and focusing on non- financial objectives like ESG (environmental, social and governance) and social impact. Indexing and smart beta are scale businesses, and he expects a small number of large firms to dominate these areas. Pure alpha is capacity constrained, and the successful firms will be boutiques (possibly sitting inside larger firms). In all of these cases, Dr. Kahn sees investing becoming increasingly systematic.
Interactive Q and A with Students
One of the personal benefits of moderating such a seminar is the interaction with bright and energetic students. The MFE students by nature are very inquisitive. A robust Q&A session followed Dr. Kahn’s remarks. As moderator, I had the opportunity to facilitate a lively discussion ranging from career advice to encouraging students to look beyond financial rewards and instead to focus on how their craft of “financial engineering” can be applied to furthering social justice, medicine and of course investing in fiduciary capacity for nonprofits, pension systems and non government organizations.
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