By Ken Akoundi and kartik uchil
“There is more to life than simply increasing its speed.”
― Mahatma Gandhi
It has been increasingly apparent that investment offices need to define certain basics to have a more efficient dialogue with vendors. Without it, ample time is spent defining, in mid-conversation, what each party means and expects by the specific terminology.
In all contexts, I refer to Long-Term Investors, a term I first picked up from Ashby Monk and reflecting the fact that these institutions are built to operate for a very long time, say the next 100 years. We have previously defined the different types of entities.
This particular piece is about depth, speed, delay, and frequency in the investment office. I originally struggled to see if I meant velocity or speed. I decided I was referring to speed, and not velocity.
The importance of these concepts lies in the fact that most of us have a personal preference for speed and frequency. Usually, younger folk prefer more breadth and more frequent and speedy delivery of information and the more mature individual prefers less frequent but deeper information. This is directly related to the individual’s ability to process information. Beyond the mental and intellectual capabilities defined by age, this preference is based on the concept of knowledge and its relevance to judgment and decision making.
These tendencies are important to understand since they are the main source of mismatch between a service provider and a long-term investor’s actions/expectations.
Depth refers to the type of data that the investment office receives. As an example, a long-only equity manager offers daily values of the assets, while a private equity manager only offers quarterly returns at the fund level. In this parlance, public equity offers the deepest level depth (e.g., security level), while private equity offers the shallowest depth (e.g., fund level). Some asset classes’ structures and not their asset class determines the available depth of data. For instance, while a hedge fund provides monthly returns depth (maybe with attributions), a managed-account investor in the same hedge fund receives daily position level values.