Technology spending is increasingly eating into the budgets of investment companies, with a decreasing amount spent on pay for human traders as companies try to get the most out of data.
A report from financial services advisory Greenwich Associates found that institutional trading companies will this year spend $17bn on their buy side trading desks, which advise investors such as hedge funds and pension funds what to invest in. This is roughly the same as last year, it said.
But according to the report, although overall spending on these trading desks will remain flat, the proportion of money taken up by technology rather than human trader salaries will increase to 40%, compared with 30% in 2015.
The trend is being driven by investment companies’ recognition that the ability to understand data and act upon this knowledge will provide a good return on investments in the software.
“A bigger share of this spend is being used on data and the analytics to put that data to work,” said Brad Tingley, institutional analyst at Greenwich Associates. “Institutional investors see these investments as well worth the cost. Until very recently, most asset managers viewed their trading desks as a cost centre. Today, they are seen as profit centres due to their ability to create an advantage over competitors with better execution.”
There is also a trend for less money to be spent on hardware as a proportion of overall spend, with more money going on software, such as data analytics.
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The report suggests this spending trend will become more pronounced as companies strive to comply with new regulations to protect investors, such as the latest version of the Markets in Financial Instruments Directive (MiFID II) in Europe, which became law last month, and the Securities Exchange Commission’s proposed order transparency rule in the US.
Technology is increasingly replacing people in the investment sector as companies invest in software that can automate data analysis and act upon it.
A report from financial services management consultancy Opimas last year said businesses in the capital markets sector will spend $2.8bn on artificial intelligence-related technologies by 2021, and hundreds of thousands of people will be replaced by software.
It said technologies such as robotic process automation, machine learning, deep learning and cognitive analytics will replace 230,000 jobs by 2025 and that the asset management sector will be hardest hit, with 90,000 people replaced. It added that about 30,000 new jobs will be created for technology and data providers.