Morningstar chief executive Mark Roomans on bringing algorithmic investing to the mainstream
Morningstar UK chief executive Mark Roomans is a senior industry leader whose career has been largely devoted to helping the investment world harness the power of data to create better solutions.
Good data has always given fund managers their edge, driving better decision-making and alpha. But the way in which we consume and deploy it has changed beyond recognition since Roomans started his career in asset management in the 1990s.
Advances such as machine learning and artificial intelligence will not replace people as decision makers in our sector, he says, but they can drive operational efficiencies. And asset managers need to reduce costs, with fees and margins being squeezed under the watchful eye of the regulator.
Morningstar is a multi-jurisdictional business with a variety of products and services and, at first glance, it can be difficult to discern how each division connects up.
A self-confessed “quant”, Roomans gained a PhD in finance and was early to spot the opportunity the nascent algorithmic approach could bring to institutional investing. His first experiences of working in “algo” teams was at such relatively traditional houses as Mercury Merrill Lynch and JP Morgan Investment Management.
The behemoths of the active management world are often criticised for not moving with the times and Roomans admits that, when he started, he encountered hostility from peers for using algorithms to drive investment decisions.
But these so-called traditional asset managers were willing to take a punt on the pioneering algorithmic investing. Now it has become mainstream and is the template for robo-advice portfolio construction, where efficiency and automation are critical to being able to charge reasonable fees.
Roomans’ views on the future of retail investing are animated by his enthusiasm for the opportunities technology has unlocked: “Technology has enabled a whole host of different ways of accessing investments,” he says.
In the immediate future, active managers will continue to lead in sectors where there are “informational inefficiencies”. Fees are under pressure. Roomans believes that, in asset classes where there are efficient markets, most asset managers should go either passive or quant.
He is a believer in strategic beta. These portfolios are constructed from factors that are not market-cap weighted and could come into their own with greater volatility.
In principle, buying the factors directly could be a cheaper way of constructing strategic beta portfolios. But Roomans sees the power shifting to the asset allocators, and Morningstar has skin in this game, having run model portfolios on platforms for advisers for five years.
Scale in asset management need not be at the expense of innovation. In fact, large asset managers could lead the way in bringing down operational costs by harnessing new technologies.
2015-present: Chief executive, Morningstar UK
2008-15: Various roles, including co-chief executive, Morningstar Australia; chief operating officer, Morningstar Europe; managing director, Morningstar Switzerland; head of new markets, Morningstar
2001-08: Chief executive, Morningstar Spain
1998-2000: Director, structured value group, Mercury Merrill Lynch Investment Management
1994-98: Vice president, JP Morgan Investment Management
According to Roomans, the next wave of innovation at Morningstar will be internally-facing. It is experimenting with using automation to improve the waydata is collected, analysed and processed.
By automating at scale, Morningstar can direct its people into higher value, more rewarding work. We should all take note. Driving operational efficiency is critical to scaling-up any business, whether ambitions are modest or grand.
Roomans’ career has been shaped by the possibilities advances in technology have opened up. Whether we use the next wave of tech to improve operations or drive better investment decisions, “we have barely scratched the surface of what can be done,” he says.
Miranda Seath is research director at Platforum