Bips is about finding basis points and is ready to assist investment management firms, which recognise the potential to improve their performance by applying the core elements of the “ best execution” process obligations to their whole investment process, end to end. It is my expectation that this will eventually become a regulatory imperative for investment firms, as well as being a competitive one.
The approach is to introduce a new pair of eyes backed by extensive experience and adopt engineering principles of good design, rigorous measurement and regular assessment with an effective feedback mechanism. Current reporting and oversight is heavily focused on investment outcomes, but Bips is about building a detailed understanding of the process itself, and introducing a more systematic governance model. This methodology is applicable to investment processes based on human or artificial intelligence, or ideally a combination of the two. This helps to identify genuine causation rather than random correlation.
A Best investment process includes defining your approach to decisions about portfolio composition, measuring all aspects of the implementation and then interrogating the data for lessons which will help improve the process in the future. This approach is central to professional sport and can be applied in the complex world of investment.
Each investor has a different process, and this will determine the steps required to be deemed "sufficient".
For example, the factors contributing to an investment decision (and, importantly, its timing) may include proprietary inputs such as research, risk and flows, external inputs such as sales ideas and research, and signals derived from market data or positioning information. Some of these may be more effective than others, or perhaps work better in certain combinations. Analytical techniques using data science will identify these and inform potential improvements to the process, which can be introduced systematically, in a carefully controlled change program.
Over time, the outcome will be the Best investment process solution, or Bips.
Investment performance, and in particular relative performance is measured in basis points, or "Bips"
If life (and football) are games of inches, Investment and trading are games of Bips.
Viewer discretion (Al Pacino does it best) http://m.youtube.com/watch?v=9rFx6OFooCs