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Big data poses challenges for active managers: Goldman Sachs

Big data poses challenges for active managers: Goldman Sachs

Active management is becoming increasingly difficult in a big data environment, points out Gary Chropuvka from Goldman Sachs Asset Management.

In an interview with Citywire Middle East, the co-head of the quantitative investment strategies team, said for asset managers to gain an informational advantage today, one has to be able to anticipate, detect, and connect the dots sooner, before other investors.

This requires both a deep understanding of vast amounts of unstructured data, much of which simply wasn’t available years ago, in addition to increasing processing power, he said.

‘The costs involved with both of these aspects of using big data are not trivial. Buying data is expensive, as is maintaining the storage and computational power to process this large amount of data.

‘Goldman Sachs, for example, spends hundreds of millions of dollars on buying data every year and close to 9,000 people dedicated to technology,’ he added.

Chropuvka feels machine learning techniques and artificial intelligence technology are strongest when used in conjunction with human intellect, grounding all statistical findings in some form of economic foundation.

While this is a great environment to be a quant investor, it is also becoming increasingly challenging to understand the data and derive the right conclusions from it.

‘There are also many more concerns about data privacy and various other legal and ethical considerations that we think are important for managers to consider while evaluating these data sources,’ he said.

Quant managers, for instance, examine over 13,000 stocks every day from many different vantage points. They assess each stock on over 150 different traits including both the fundamentals and the market dynamics surrounding the stocks.

‘We have noticed that the valuation spreads between the most expensive and least expensive stocks within industries has been increasing recently, with growthier, more expensive stocks continuing to rise.

‘Many quant managers have a value bias towards cheaper stocks, and this has proved to be a tough market environment for them. However, as markets stabilize and stock prices move towards their long-term fundamentals, we hope to see an improvement in quant managers’ performance more broadly,’ the executive concluded.