Skip to main content

Using agile research methods for better collaboration, oversight, pattern recognition and the automation of time-consuming tasks all point to an upswing in performance and productivity.

Investors increasingly demand to see the workings of a rigorous, repeatable investment research process to back up the knowledge and judgement of portfolio managers. The stakes are high and the competition fierce. But when it comes to the crunch there is overwhelming evidence that, for all the brilliance of investment practitioners, such processes look alarmingly unstructured under the microscope.

The absence of recognized frameworks for buy-side investment research processes threatens to deny fund managers of a new competitive advantage.

Working at the intersection of asset management and software-as-a-service, we wanted to explore ways in which commandeering Agile methodologies from the world of software development could offer portfolio managers an accelerated starting point. So we put our heads together and asked – could Agile be the answer? Here’s what we found…

Don’t fear structure, find flexibility with formality

The challenge for fund managers is to encapsulate the talent of research analysts into some form of professional framework, without cramping their style. The benefits are greater than simply pacifying investors and partners.
It’s proven that introducing a more consistent framework can make the investment research process tangible for the first time, improving oversight and measurement, and enabling greater performance and productivity to be continuously enhanced.

Fund managers increasingly come to us with a desire to pinpoint exactly what constitutes their most successful investment research process. Because when you understand what works and what doesn’t, and why, you can start to establish a repeatable approach to investment decisions. And yet few frameworks have been consistently implemented internally, or across the industry, and even fewer documented.

Software developers had the opposite problem with their working practices; too many formalized procedures and a rigid, sequential method of completing tasks. This frustration with the status quo was the motivation for 17 software professionals to come together at a Utah ski resort in 2001 and hatch their manifesto for Agile development.

The manifesto itself doesn’t waste time getting to the point, with a simple set of four values, and corresponding principles, that all investment professionals should be able to associate with.

1. Individuals and interactions over processes and tools

As with investment research, people make all the difference. And while the processes and tools they use are of vital importance, their purpose is to equip individuals and teams to be productive, exchange valuable insights with one another and learn continually to make ninformed decisions, faster.

Organizations that adopt Agile principles – investment-based or otherwise – share a hard-wired preference for technology that automates away repetitive tasks so that people can concentrate their efforts on core, high-value activity.

In such a knowledge-intensive environment as investment research, where the ability to generate ideas that produce returns is a precious human asset, this Agile principle rings true.

2. Working software over comprehensive documentation

Applying this to investment management we could say, “producing quality, actionable research ideas over delivering a large quantity of material and running through overbearing checkbox processes for the sake of it”. Albeit a bit verbose.

This principle underlines the importance of having an end-goal research process and knowing what that should ideally and consistently look like in order to bring about an environment for optimal idea generation. As well as measurable performance (results), this environment can also support continuous improvement and efficiency of effort, and enable compliance that comes easily.

Creating a more systematic approach to the research process builds in consistency and speed, making it easier to optimize analyst productivity and idea generation, while enabling the portfolio manager to make better informed comparison, analysis and prioritization of investment decisions. This gives rise to the concept of comparability of outcomes in investment research; an essential step in understanding optimum workflows for a successful process.

3. Customer collaboration over contract negotiation

In software development, the customer is the one paying developers to create the software. Applying this to pre-trade investment, the developers are the research analysts and the ultimate customer is the portfolio manager. This principle is intended to ensure that the ‘customer’ not only gets to determine the direction of work from the outset, but can continue to do so throughout the lifecycle of any given project or process.

In other words, Agile allows for the concept that portfolio managers should be able to dictate investment guidance and criteria without being overly invasive. Moreover, it reiterates the importance of non-disruptive collaboration and involvement between all stakeholders, where valuable.

4. Responding to change over following a plan

This is the principle that made Agile so controversial. But not knowing the precise route before setting out on a journey is not such a radical concept if you are sufficiently equipped to respond to change.  Many funds, by their very definition, are designed to operate at optimum flexibility to leverage first-mover advantage and capture opportunities more quickly than rivals. But, without the kind of structure afforded by a framework approach, their research processes and systems aren’t.

Indeed, being able to respond dynamically to changing demands is essential to accomplishing continuous improvement of the research process – in our case, how effective research processes positively impact fund performance, investment returns and continued investor confidence.

Empower investment research practitioners

More than 15 years on from the birth of Agile and there is clear evidence for the benefits it produces to organizations and their management objectives.  The 10th annual State of Agile report (2016) highlights the top three as: the ability to manage changing priorities (87%), increased team productivity (85%) and improved visibility (84%).

Harder to quantify is why Agile is so popular among developers (our equivalent of research analysts). The anecdotal assessment here is that they universally enjoy the freedom it provides under the umbrella of a professionally recognized framework.Much of this individual and group empowerment comes in the form of collective knowledge. Applying the same Agile principles to the investment research process would enable analysts to better leverage one another’s experience, avoid previously encountered pitfalls and tune-up their own methods.

Such data aggregation and analysis in turn allows analysts to achieve measurable improvements in output and results. And rather than following a rigid, proceduralized approach, the effect would be to protect the autonomy of individual analysts, and minimize the need for PM intervention.As well as boosting their fund’s research productivity, this approach also equips portfolio managers with a new pattern recognition capability that learns from previous investment positions and accelerates the efficiency and success of future ones.

A more professional investment research process is the new competitive weapon

The continuing lack of a professional framework for investment research is blunting the competitiveness of funds. Using agile methods for better collaboration, oversight, pattern recognition and the automation of time-consuming tasks all point to an upswing in performance and productivity.

The pressure on funds to demonstrate the rationale for their investment decisions is a different pressure to unearthing competitiveness though. We should also consider the alternative reality: that introducing agile approaches would bring none of these performance gains. What then?

Yes, potential investors are scrutinizing the operational diligence of funds, but the SEC and other industry bodies also demand that fiduciary responsibilities are proven to be discharged. At the very least, Agile methods should assuage both these concerns in addition to any performance advantage. In any event, the claim that management frameworks risk infringing upon analyst creativity is no longer valid with a flexible arrangement of principles like Agile.

The reality of any Agile implementation is choice. There are many potential tools and frameworks that sit under the Agile umbrella. In the software development example, developers pick the best from each (Kanban, Scrum, eXtreme Programming etc.) to suit their needs.

Agile isn’t a silver bullet, in fact it is not a framework in itself. It prescribes working incrementally, collaboratively and flexibly. From our own perspective, we approach agile software development at Bipsync by leveraging the different areas of the framework that works for us (see blog: making agile work for us). Similarly, we know every fund is different in its willingness to implement structure and process, and in the technical resources to do so; the route to adopting agile methods would be no different.

For their part, analysts should be positively receptive to an agile-like approach.  For portfolio managers, the opportunity to adopt elements of the agile methodology is even more compelling. This is because there are great efficiencies to be had along the way, with minor and easy-to-enact changes potentially resulting in significant gains in an industry where every small edge counts.

Taking an agile approach to investment research needn’t be a revolutionary step. Applying it to existing processes could well be an intelligent place to start.