Artificial Intelligence (AI)I is advancing rapidly in virtually every industry. Technologies rooted in AI are affecting cost dynamics, introducing new market participants, and challenging long-held assumptions about on a routine basis. AI is becoming the main tool for gaining a competitive edge in many fields. As such, the emergence of AI is changing the operating model for investment firms. While AI often leads to better predictions and results, it also introduces a new set of challenges.
AI makes investing more accessible
The investment management sector is undergoing disruptive times. Thanks to these new technologies, the very concept of investing is being transformed from a practice that was relationship-driven and only accessed by the wealthy few to a new activity that serves a much broader customer base. Today, the demand for digitized, convenient financial services has risen, and, as such, the opportunities to participate in exciting investment opportunities can be achieved easily and quickly.
AI usage in the investment sector
For financial institutions on both the buy-side and sell-side, this wave will disrupt an industry that has long been stuck in its ways. With stakes this high, the risks are great. But the opportunities are great as well.
A lot of firms are using AI to improve operational processes, while others use it to improve the way they analyze securities and make investment decisions.
Currently, many of the investment firms which use AI are quantitative hedge funds and asset managers. But a growing number of companies, large and small, startups and established, are finding new ways to incorporate the technology into their own operating models.
An investment manager’s clients probably won’t care about the fancy AI tools the investment manager is using. Eventually, a client will care about exactly four things:
- Timely responses, advice, and high-touch service
- Risk-adjusted returns
- Getting richer
- Consistent excess returns (alpha)
Where AI can add value?
But overall, AI can be used in different areas in investment management. We will look at these three areas where AI can add value to investment management firms:
Analysis & Reporting: using natural language processing to generate reports for clients and summarize earnings calls & annual reports for analysts.
Risk Management: using machine learning to manage investment and portfolio risk.
Investment Insight: applying machine learning, deep learning and computer vision to alternative data to predict things like retail store performance, commodity supplies, and general economic activity
Algorithm Generation: AI can help find the best strategies and trading algorithms for those engaged in algorithmic trading, taking in a combination of also the above areas.
There are clear benefits to applying AI to these use cases. Improved data insights and risk management results in better investment outcomes, fully automated or not. Atama.ai is a startup engaged in developing tooling that helps investment firms get towards AI in all aforementioned areas.
A September 2019 report by the CFA (Chartered Financial Analyst) Institute included a survey designed to understand the state of adoption of different technologies in the workflows of analysts, portfolio managers and private-wealth managers. The results showed below.
Using AI to make important investment decisions is better than just a human decision. The errors associated with human decision-making can be drastically minimized, or even completely eliminated. Implementing a system that omits these human errors allows investment strategies to be chosen that are significantly more objective, in both their formulation and execution.
With such a range of benefits to be reaped by the investment-management industry, AI can offer an almost entirely new perspective on the investing process. As with many cases related to such innovative technologies, the ones who make the transition towards AI adoption the soonest are likely to be the ones who will benefit most in the long run.
Atama.AI has developed an AI-based tool that will help those firms either getting started with AI, or ones that already started performing better while needing less staff to achieve better results.
Contact us in case you are interested and we will offer you the best options!