Technology-Driven Investing

Before we begin, don't forget to subscribe to EisnerAmper wherever you listen to your podcasts, and you can also find us on YouTube at EisnerAmper. Hi, James. Thank you so much for being with me today. 

James Francis: 

Well, thank you for having me. It's a pleasure. 

Elana Margulies-Snyderman: 

Absolutely, James. So, as I mentioned, you've been a pioneer in data-driven equity investing for decades. Can you walk us through the evolution of Paradigm Asset Management and how that journey led to the launch of PaaS Invest? 

James Francis: 

Absolutely. So, as you mentioned, Paradigm was founded over 30 years ago, and when we set the firm up, we had a very clear mission. We wanted to develop a differentiated investment approach. At that time, most firms were still investing as an output of their instinct, whether it was selecting securities or how they weighted portfolio, and very little technology was being utilized. It was also the beginning in many ways of the quantitative era in asset management. But given that those two styles were there, we still thought that there was a third rail, so to speak, that could be created that combined the best of fundamental and quantitative. And I don't mean quantamental. 

So, we wanted to deliver the depth of research found in fundamental strategies, however, without the inherent biases that come with fundamental approaches. And we also wanted to combine that with the discipline, breadth, and scope of quantitative strategies. So, we wanted to leverage data and sophisticated algorithms in order to achieve that goal. And we call it collective intelligence. 

And our latest offering that you mentioned, PaaS, portfolios of service, it really grew out of many projects that we conducted with our clients and prospects over the years, helping them address very specific problems or opportunities that they brought to us. And it turns out, when we look back at many of those projects, they really revolved around how strategies were being either created, deployed, or delivered. And we took that learning and took our internal investment know-how and technology and decided to put it one step closer to our clients. And in essence, it's a way of putting our proven process infrastructure and oversight directly in the hands of our clients. 

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Elana Margulies-Snyderman: 

James, given your focus on data-driven investing and the use of technology, what's your outlook on where the space is headed, and how is it reshaping the asset management industry today? 

James Francis: 

Well, there's a couple of shifts that I'm seeing occur in the market. Obviously, AI is impacting asset management, like every other industry. Firms are seeking ways to modernize their processes, whether it's in the front, middle, or back end of the house, while at the same time trying to preserve their performance and historical oversight mechanisms. And this has really created a real tension because organizations that have these legacy systems are trying to modernize while continuing to operate. 

And when you think about that, most of the technological, most of the fintech solutions that have been offered to the industry historically have been in the areas of operations, compliance and customer service. But now we're seeing a real focus on the core of the investment process, strategy, design, research, and portfolio construction. 

So, when you really think about it, the old model of promoting analyst headcount within a firm is really giving way to the new edge, and that's data and technology. And it's really more about how do firms turn data into actionable insights? And that's really the differentiation. And for us at Paradigm, this is not really a pivot, it's the way that we've operated from day one. We've always had a data-driven and disciplined approach. It's just now that there's context in the industry to understand what we're doing. 

Elana Margulies-Snyderman: 

And James, from your vantage point, where do you see some of the greatest opportunities today, whether in how strategies are designed, delivered, or accessed? 

James Francis: 

Well, I believe that technology is going to create opportunities in really two big areas, two areas, agility and customization. So first, agility, when you think about it, markets are more dynamic than ever, and clients are no longer willing to wait six-to-nine months to reallocate capital or to reposition their portfolios. They want to be able to respond to opportunities quickly, or they want to be able to become defensive quickly. And they want to be able to do so in a way that's aligned with their goals and without creating the typical friction that's involved in hiring and firing managers. 

The second area that I see is customization. Clients today want more than a cookie-cutter, one-size-fits-all portfolio. And when you think about what's occurred in the wealth space, direct indexing has opened the door for customization, and clients are asking for more and more personalization and customization than ever before. And this is occurring at the retail as well as the institutional space. So, they're asking, "Can you deliver active portfolios that express my values, that express my exposure, desires and constraints, and then doing so in a tax-efficient manner?" So, tailoring today isn't just about tailoring for customizing sake, it's about precision at scale. And that's what we do here at Paradigm. And through PaaS, we're able to deliver these real-time strategy designs with institutional-grade execution. 

Elana Margulies-Snyderman: 

James, on the flip side, what are some of the biggest challenges for firms trying to keep pace with the demands of modern investing? 

James Francis: 

Elana, I think there's three main challenges that I see that firms are facing. One is infrastructure and the processes. Now, many firms today are still using their historical processes and systems that were not necessarily built for speed and flexibility that the market requires today. Secondly, it's the talent gap. And when you think about modern investing, data, technology, it requires a different mix of skills. It requires people who understand data systems, signal design more so than just the traditional skilled and trained analysts. 

And the third area that I think is a big challenge is that AI is everywhere, but all AI systems are not created equally. So, you have this rush in the market that is taking place while many firms actually lack the expertise to adequately vet whether they're a data source or potential AI models and systems that are generating these results. And so, I think that there needs to be a lot of caution. We're going to have to be more deliberate, although the market is demanding that organizations look at change. I think for the sake of our clients, that it needs to be done in a very measured pace. 

Elana Margulies-Snyderman: 

James, we've covered a lot of ground today, and I wanted to see what's next for Paradigm and PaaS Invest as you continue shaping the future of capital management? 

James Francis: 

Well, I believe, not just for Paradigm, I believe that as it relates to the industry, I think the future belongs to those firms that will be able to offer clients clarity, control, and customization, and to be able to do it without the friction that typically existed in the industry historically. And that is what we're focusing on. We are focusing on improving and expanding our platform. We've added more and more strategies. We now include thematics, long, short, 130/30 as well as many advanced tax aware features. We've expanded our ESG alignment tools, and we are looking for continued and greater integration with our client's technology as well as advisors' platforms. And so, we're continuing to invest in our infrastructure and our research in order to build better portfolios and to be able to react quicker to changing market conditions. 

Elana Margulies-Snyderman: 

James, I wanted to thank you so much for sharing your insights and vision with us today. 

James Francis: 

Well, it's been a pleasure, and I appreciate this opportunity. Thank you very much. 

Elana Margulies-Snyderman: 

And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business. 

Transcribed by Rev.com