The saying goes that you should only invest in what you know. But what do you invest in if artificial intelligence (AI) knows best?
Investing in what you know is an eminently sensible concept. Yet, we also know that the invasion of robots into investment management is seemingly unstoppable — from robo-advisory in wealth management to quant strategies and robotic process automation in asset management. So, what will you invest in as investing changes?
Ever smarter computers and algorithms have improved the way money managers invest. And, as the digital revolution is transforming the asset management industry, digitized data is creating the fuel needed to feed the AI computing engine. Although we know that past performance is not necessarily an indicator of future performance, portfolio managers make investment decisions on the basis of data related to companies and their managers. And we know that AI is more efficient than human beings when it comes to sorting and analyzing vast amounts of structured and unstructured data.
EY’s wealth and asset management advisors are finding that some of the largest asset managers are now reaching a critical point. They have achieved the digitization of a huge amount of data and are looking for ways to make better use of this data to serve their clients. This mountain of investment data appears impossible to scale to the human eye, even with the help of complex spreadsheets and sophisticated Visual Basic for Applications (VBAs). But, this critical mass of data is exactly what AI needs in order to truly “learn” and develop insights based on these learnings. For example, analyzing data from 10 years of financial statements for dozens of companies in a typical fund manager’s portfolio is the stuff of nightmares for research analysts — yet it’s the perfect learning opportunity for AI.
The company realized that their digital transformation journey had yielded operational efficiencies. They were ready to take the next step and focus on transforming their investment processes by leveraging new technologies. Their aim was not just to take a few steps forward, but make an innovative leap that would help create a competitive edge. They wanted that leap to support portfolio managers and research analysts to deliver more alpha, and design completely new investment products.
This mission really resonated with our purpose of “building a better working world” by helping businesses accelerate innovation and leverage emerging technologies to operate more efficiently, manage risk and inspire confidence.
We agreed to collaboratively design the new foundations of the asset manager’s investment processes. At the outset, the working group, comprising EY’s asset management technologists and consultants, and representatives from the client’s research, portfolio management and IT teams, set out the project’s three foundational pillars:
- Number one was the belief that portfolio management and research analysis skills will, over time, transform into a portfolio management and data scientist skill set.
- Number two was that now is the right time to find new sources of information and develop machine learning skill sets in order to invest for long-term growth.
- Number three was the objective to use technology in the investment processes to deliver increased efficiency and potentially enhance alpha.
The focus of the project was research and portfolio management; together, we identified these areas as most likely to benefit from an investment in solid digital foundations. Specifically, we agreed that the use of AI could quickly deliver the following efficiency gains: