Technology

1
Technologys Impact on Asset Management

• Campbell R. Harvey
• Duke University, Durham, NC USA
• National Bureau of Economic Research, Cambridge
  MA USA
• http//www.duke.edu/charvey

2
Technology and Finance-----Plan

• Brainstorming of the future landscape in which
  asset management firms will operate.
• Forecasting technological change and its impact
• A Reassessment of the Role of the Corporation
• The Individual as the Market
• Money, Debt and Barter in the New Economy

3
Technology and Finance-----Forecasting Change

• Jack Welch
• Q Where do you think we are as an economy as far
  as e-business goes?
• A First inning.

Fortune, May 1, 2000
4
Technology and Finance-----Forecasting Change

• Scott McNealy
• We are just 0.5 into the e-commerce revolution.
  This has just started.

5
Technology and Finance-----Forecasting Change

• Lou Gerstner
• It will have implications for the nation-state,
  for the ways we organize around the world.

6
Technology and Finance-----Forecasting Change

• Peter Drucker
• Distance has been eliminated. There is only one
  economy and one market.

Atlantic Monthly, October 1999.
7
Technology and Finance-----Forecasting Change

• What does this mean?
• What are the implications?

8
Technology and Finance-----Forecasting Change

• We have seen exponential growth in exponential
  growth of computing!
• Growth factors
• Shorter distance for electrons to travel
  (transistor die size gets smaller)
• Greater number of transistors

9
Technology and Finance-----Forecasting Change

• New growth factors
• Pipelining -- Multiple calculations performed
  at the same time (parallel processing)
• Hence, conservative forecast would be to slow to
  exponential growth

10
Technology and Finance-----Forecasting Change

• Human brain
• 100 billion neurons
• 1000 connections between each neuron
• 100 trillion connections, each capable of
  simultaneous calculation

11
Technology and Finance-----Forecasting Change

• Human brain
• Strength
• Massively parallel
• Weakness
• Very slow, only 200 calculations per second.
• Explains why brains does a great job at
  operations that require massively parallel, such
  as pattern recognition.

12
Technology and Finance-----Forecasting Change

• Human brain
• At 200 calculations per second and 100 trillion
  connections, implies 20 million billion
  calculations per second.
• Today, we can do 2 billion calculation per
  second.
• Lets forecast!

13
Computing and the Human Brain
1040 1035 1030 1025 1020 1015 1010 105 10
10-5 10-10
All Humans Brains
Calculations per second per 1000
Human Brain
Mouse Brain
Insect Brain
1900 1920 1940 1960 1980 2000 2020
2040 2060 2080 2100
14
Technology and Finance-----Forecasting Change
Ray Kurzweils Forecasts 2020 Will achieve
capacity of human brain 2025 Will achieve the
same capacity for 1000 2060 Achieve the capacity
of 1 trillion humans
15
Technology and Finance-----Forecasting Change

• What about memory?
• Brain capacity is 100 trillion synapse strengths
  which is approximate 1 million billion bits
• 1 billion bits (128 megabytes) today costs less
  than 100.
• Reasonable forecast would be the memory
  equivalent of the brain by 2020 for 1000

16
Technology and Finance-----Forecasting Change
Impact for the Corporation? Corporations mainly
evolved in the late 19th century as a way to
reduce transactions costs (including limited
liability) The forces that created the
environment for the corporation to thrive seem to
be working against the corporation in the future.
17
Technology and Finance-----Forecasting Change
Impact for the Corporation? Transactions costs
are dramatically lower (this includes barriers to
entry, cost to reach consumer, etc.) The logic of
centralized control has given way to a
decentralized entrepreneurial type of capitalism.
18
Technology and Finance-----Forecasting Change
Impact for the Corporation? We see glimpses of
this in some recent spinoffs BCE and Nortel as
well as ATT. Need to look hard at what are the
advantages that a large corporation in this
future landscape.
19
Technology and Finance-----Forecasting Change
Impact for the Consumer? More information, more
competition, more value. Evolution from mass
marketing, to segments, to individuals.
20
Technology and Finance-----Forecasting Change
Impact for Finance? Stock exchanges as we know
them today will disappear. Trading will be
computer versus computer - there will be little
role for humans
21
Technology and Finance-----Forecasting Change
Impact for Finance? We have seen very crude
neural net applications fail. In the future,
much more complexity is possible.
22
Technology and Finance-----Forecasting Change

• What about currency?
• Transactions cost of barter have dramatically
  decreased with Internet
• In the future, money will be a unit of account -
  and it is not even clear that is necessary (unit
  of account could be anything)

23
Technology and Finance-----Forecasting Change

• Implications for currency
• Large B2B barter market
• Forward barter could reduce much of the need for
  working capital
• Rethink the need for debt

24
Technology and Finance-----Forecasting Change

• Implications for global finance
• Currency less important
• Shorter term Three currency zones
• Shortly after One world unit of account

25
Technology and Finance-----Forecasting Change

• Implications for finance
• Currency hedging will be less important - if it
  exists at all
• Implications for interest rate management
• Debt will not be in traditional currency but goods