Finance or Fintech?
Updated: May 21, 2020
When most people think ‘trading’ the image of posh lads from Oxford with pin stripes suits shouting random numbers and a blend of well strung “buys” and “sells”. Albeit there are still some unstructured markets where such manual trading is conducted, it is becoming quite far from what is becoming a reality in the new age of financial technology. - written by themarketace.
Competition is forcing businesses and funds alike in lowering their margins. This in turn creates quite the cost pressure compelling the whole industry to look for efficient solutions in order to trim the proverbial hedges around their budgets.
Then there are the hedge funds. I still remember quite vividly, when I graduated from university in 2006 with a degree in financial engineering, I was constantly prompted to not forget the people around me when I finally become a hedge fund manager and scrooging around in heaps of cash. Hello 2008! The argument from Warren Buffet has always existed that Hedge Funds overcharge their clients for what they do. Part of a Due Diligence meeting is filled with these great big models (financial – nothing sexy about that) that can show amazing historical fits within the markets. Everyone can predict the past; can they really predict the future? The days where Hedge Funds could charge the 2/20* fee structure are numbered if not already over.
As long as there are wealthy individuals there will always remain a need for some form of a Money Manager. These are the gifted (or really lucky) individuals making the investment decision on managed monies. This though is only restricted to the active managers. One can easily predict Passive management to eventually disappear in to automated decisions made either by top down filtering algorithms or in to tracking an already created Market / Sector benchmark or index. The increasing shift from active to passive management can be seen by fund flow data along with the sheer number of investment grade indices being created. Most have been performing quite well due to the bullish nature of the markets over the last few years – however these indices have also evolved in to Long Short (market neutral) investment techniques.
I get asked by many young aspiring students as to “whether they should join FinTech” or whether “it is worth joining investment operations”. My answer is almost always the same that you should really follow what you feel is a good career choice for you. For if you are the best in what you do, no matter the industry diminishing you will always be in a job. If, however you are confused, I would recommend against joining in to an operations role, considering the current landscape the market is forming. Ops seems to be a dying sector of the industry that is being taken over by machines and automation.
What was once the (for lack of a better term) sexiest industry, finance (especially operations) is becoming quite simple. Regulations like the Dodd Frank, MifiD and EMIR have deeply regulated the industry and its participants. With all the regulatory pressure and a move towards efficient solutions the trend of “sexy” seems to be moving toward the FinTech industry rather than the money managers. No longer than only a few years ago, FinTech companies were seen as a graveyard for students who couldn’t crack it in to a Tier 1 Investment Bank or Asset Manager. They would stay there for a couple of years and use the experience as a stepping stone in to the “Markets”. How things change. Having worked in both money management and financial technology – there is nothing stopping you from having a challenging and stimulating role in either FinTech or finance. There is however a consideration to be made for where the future lies.
*A 2/20 fee structure is referred to the management/performance fee charging model. Where a fund would charge its clients 2% on their investment as a management fee and then a further 20% on their annual performance.