Eduard van Gelderen on Understanding the Technology Payoff
During my career in finance, I’ve attended many conferences, summits, roundtables and other events. Most of the time, topical developments were discussed, helping investors make sense of the world around us. In essence, these developments have remained the same over the years; it is the actual manifestation that attracted attention.
We’ve always had wars, economic setbacks and innovation, and we certainly have had market bubbles. Experience is a powerful resource that can help us deal effectively with these forces. But one development stands out to me: technological innovation.
Investors have had a love-and-hate relationship with technology for as long as I can remember. Interests hardly ever seemed to be aligned: Either quant investors asking for more technology were not fully understood by the technology group, or the technology group pushed for systems the investors found too rigid.
This debate was on the agenda of every event and oftentimes met with mixed emotions. Yes, technology was generally considered a must to advance the institutional investment industry, but the experience was also that technology makeovers were always more costly than expected, planning cycles were pushed out constantly, and—due to scope drift—projects were not delivering the promised advances that were so badly needed.
It was a bit of a catch-22: If you didn’t invest, you would certainly fall behind. But if you did invest, the project would start to claim a large part of your budget with hardly any real benefits—at least, any perceived as such—for the investor.
Technology Affects All Inputs
The problem can be related back to the positioning of technology. In his 2023 paper, “‘The Investor Identity’: The Ultimate Driver of Returns,” Ashby Monk described an institutional investor’s organizational capabilities as establishing the organization’s identity, and he distinguished the roles of inputs and enablers in producing returns. The fundamental inputs he identified were the four ingredients required to produce investment returns: capital, people, processes and information. The enablers he identified were governance, culture and technology.
Enablers and inputs interact, but the interplay between them might be misunderstood. As mentioned, if technology is seen as a stand-alone enabler and not integrated into a business strategy, it certainly will lead to a costly experience, along with a lot of frustration, because it will not match the investor’s needs. That outcome is equally true for the other enablers. But a common mistake is linking technology to information alone and not to the other inputs. A more holistic approach is needed.
Technology helps an investor operationalize intelligence and better understand the characteristics and sensitivities of the existing portfolio (capital). As such, it helps investors make better decisions (people), and it links the different steps in the value chain (process). In that respect, labelling technology as an enabler might be misleading. Perhaps it is better to talk about technology as the driver of an integrated investment process.
Development topics remain the same over time, but where things differ is the manifestation, and that makes the discussion of artificial intelligence unique.
How, Where AI Fits In
An increasing number of academic and popular articles are published showing the benefits of AI applied to investment management. But the reality is that the scope of these applications is rather limited, as most are focused on productivity gains. Using AI to monitor the news to generate investment ideas is, first and foremost, a productivity gain. Using AI to compare bond documentation and/or produce investment reports—the same. An interesting next step is to let AI check whether investment proposals are in line with an organization’s investment beliefs. Obviously, we should embrace this type of efficiency, because they do matter.
But the real impact of AI starts to become clear when we think holistically about an investor’s identity. Ajay Agrawal, an economist and professor at the University of Toronto’s Rotman School of Management and a leading AI expert, distinguishes point solutions from system solutions. It is not just the productivity gains found in the separate steps of the investment process that matter (point solutions), but also the interactions between the different steps (system solutions)—including all those involving service providers (such as the custodians, valuation agents and data platforms).
Many investment organizations do not think about system solutions yet. But it is not unreasonable that with AI, the sequential steps in the investment process (idea generation, execution, performance measurement, attribution and risk management) will become parallel processes influencing decisionmaking instantaneously instead of with a time lag of several weeks or even months.
This would require a complete redesign of the investment process. According to Mohamed Khalfallah, a partner in Emerton Data, the goal is to leverage all the value trapped in data platforms by implementing an ecosystem of specialized agents, orchestrated by a central engine. This will elevate investment professionals from “information aggregators” to “data-empowered decisionmakers.”
Full Adoption Is a ‘Must’
On a strategic level, those in the C-suite need to start thinking about the “AI North Star” and how technology and AI are going to support the mission of the organization. This is different for every organization.
A low-cost beta investor is probably more interested in productivity gains than a pension fund managing the solvency of the fund and trying to match liabilities. In case of the latter, resilience is the name of the game, and it is likely that the true value of AI is related to the fund’s risk management function. It is important to realize that this is a C-suite responsibility, not simply the responsibility of a chief technology officer, as it requires taking into account all the inputs and enablers.
This is where the shoe might pinch: The C-suite of many organizations just started the AI journey. (In fact, not long ago, many C-suites did not even include a chief technology officer.)
Is the pay-off of technology well understood? I think we can and must do better. As Peter Strikwerda, global head of digitalization and innovation at the Netherlands’ APG Asset Management, stated, “New technology on top of an old organization will only lead to a more expensive old organization. With the advent of AI at scale, it’s now time to ask how systems need to be adjusted.”
Effective and timely decisionmaking in a volatile, uncertain, complex and ambiguous world is only becoming more challenging—making the full adoption of technology and AI a must. Yet a strategic plan understood and supported by an organization’s C-suite is necessary to focus on what really matters—results—and to avoid the feeling that improving technology only as an enabler leads instead to budget overruns and late delivery, never producing the needed increase in long-term value.
Eduard van Gelderen served as the head of research at FCLTGlobal in 2025 after spending more than six years as the CIO of PSP Investments in Montreal. Prior to his role at PSP, he worked for the investment office of the University of California and was CEO of APG Asset Management in the Netherlands. He recently launched Brave Foresight, an investment management consultancy company.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of CIO, ISS Stoxx or its affiliates.
Fantastic article by Eduard van Gelderen who I want to publicly commend as he recently sucessfully defended his PhD thesis on AI and the Canadian model.
Eduard writes exceptionally well, but let me dummy down his main insights above.
We live in a very uncertain, complex and volatile world where decisionmakers need to adopt technology and AI.
However, adopting new technological platforms and AI without the full C-suite and a clear understanding of where you are heading with all this will just end up being a costly exercise that fails to achieve desired results, namely, increasing long-term value.
Eduard makes the important point that a common mistake is linking technology to information alone and not to the other inputs. "A more holistic approach is needed."
What does he mean? You can adopt the latest and best platforms on performance attribution, risk, whatever but if you don't link it up to all inputs and make sure your teams are leveraging this information to obtain better investment outcomes consistently, then what's the point?
I've personally seen many large and small pension funds migrate from one system to another without fully understanding all the risks and without benefiting from the operation in any meaningful way.
Oh, you paid millions to get the latest risk, CRM, performance attribution system? Good for you, and what do you have to show for it? Nada.
We are all in the investment business, adopting technological change whether its old or new like AI sounds great but in the end the only thing that matters is better outcomes.
As Eduard eloquently states:
Is the pay-off of technology well understood? I think we can and must do better. As Peter Strikwerda, global head of digitalization and innovation at the Netherlands’ APG Asset Management, stated, “New technology on top of an old organization will only lead to a more expensive old organization. With the advent of AI at scale, it’s now time to ask how systems need to be adjusted.”
Effective and timely decisionmaking in a volatile, uncertain, complex and ambiguous world is only becoming more challenging—making the full adoption of technology and AI a must. Yet a strategic plan understood and supported by an organization’s C-suite is necessary to focus on what really matters—results—and to avoid the feeling that improving technology only as an enabler leads instead to budget overruns and late delivery, never producing the needed increase in long-term value.
I alluded to this earlier this week when I looked inside HOOPP's total portfolio approach and stated while TPA and integrated total fund management (TFM) sound sophisticated, in the end all that counts is are they delivering better outcomes for organizations and is there a way to measure this relative to the old model based on beating benchmarks?
I can say the same thing about AI, it sounds promising especially in terms of integrating responsible investing but will it deliver better outcomes for pensions over the long run and can we measure this clearly?
The jury is out, it's too soon to make big proclamations but people like Eduard van Gelderen are asking the right questions and helping investors think through these complex topics.
Below, Eduard van Gelderen is Head of Research for Focusing Capital on the Long Term (FCLT), an organisation that was established in the wake of the Global Financial Crisis, or Great Recession as it is known in the US, to move away from a so-called "quarterly capitalism", which arguably contributed to the crisis, and towards a true long-term mind-set (eight months ago).
Also, Jonathan Webster, the senior managing director and chief operating officer of CPP Investments. Jon discusses his career journey, his experience at Boston Consulting Group and Lloyds Banking Group, and the transition from the CIO role into the COO role. Jon talks about the strategic importance of technology and data in driving investment strategies, the shift towards a product-based technology delivery model, the implementation of a modular architecture, and the potential of generative AI to revolutionize workflows.
Jon emphasizes the significance of being software-defined for security, integrating user-centric design, and the necessity of fostering a culture of curiosity, dissatisfaction with the status quo, and thorough understanding within his team. Finally, Jon reflects on the kets to his career success and looks ahead at the trends in generative AI and other technologies (April 2024).
Great discussions, take the time to listen.
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