Connect with us

Business

ASSET MANAGERS ARE TURNING TO AI TO DELIVER HIGHER RETURNS AND MEET INVESTOR EXPECTATIONS

Published

on

Francesca Campanelli, Chief Commercial Officer, Axyon AI

 

The world has certainly been shaken by the global economic impact of the COVID-19 crisis, with the uncertainty causing market volatility across the board. The issue for asset management firms now is that they’re under pressure to adapt to this new post-COVID landscape and their focus is on demonstrating investment resilience to their clients.

So why the more positive outlook, and, therefore, expectations for 2021? Many people expect this year to be a better one for the stock market as the world economy beings to recover from the crisis. This time last year the world was in the middle of a vast market crash, caused by a global disaster that no one could have predicted.

2020 sparked a boom in first-time investors, with research from Alliance Trust suggesting that 66% of investors between the ages of 18 and 34 invested for the first time. Despite the financial strain the pandemic caused for many, others were left with extra disposable income and time on their hands during lockdown. These budding investors are more aware about technology and innovation and they ask for this in portfolio management.

Many investors will also be expecting better things in 2021 to make up for disappointing results in 2020 – the market shock caused by the pandemic hit fund managers hard. World stock markets plummeted during the initial uncertainty of the pandemic and, to give us an idea of the impact, in the first quarter of 2020 only 17% of U.S. large-cap quant mutual funds outperformed their benchmarks after fees.

Now however, the COVID-19 vaccine is being rolled out en masse in many countries and governments around the world have put together stimulus packages and policy changes in an attempt to protect businesses and individuals from financial difficulties. When the vaccine was first announced in the UK last November, for example, the stock market rose by 14% in just a week, and there’s hope that other markets will see the same happen as 2021 continues.

 

Asset management firms call for change

While the economic outlook for 2021 is brighter and people are willing to invest, fund managers are faced with a potential retention issue in the face of further volatility. Despite the fact that experts are predicting a strong global economic rebound, it’s almost impossible to predict what’s going to happen. But investor expectations remain high, and if those expectations aren’t met, the drop in business could be dramatic.

Traditional risk management methods faced some issues during the pandemic. The severe market shock at the onset of the COVID-19 pandemic pushed a large amount of chaotic data into the quantitative models. These models simply couldn’t cope – the predictive market views were also erratic.

Investors cannot tolerate huge drawdowns and they ask for more effective risk management to avoid unexpected loss. There’s also the very real possibility of a second market shock – for example, what happens if the virus mutates and impacts the efficacy of current vaccines? Despite the positive socio-economic changes that are happening globally, the world is still in the grip of a crisis and there’s no way of knowing whether the markets can avoid another drop.

 

Superior analytical power

The risk of investors losing confidence in their funds is a real one, so it’s crucial that asset management firms take steps to ensure they’re prepared for any potential future crashes. Using AI and deep learning systems to mitigate risk will go a long way towards making smarter and more profitable decisions and meeting investor expectations. AI-led hedge funds are proving to be high performers even in the wake of the pandemic, producing cumulative returns of 34% between May 2017 and May 2020 compared to only 12% for the global hedge fund industry.

Advanced AI systems are better equipped to weather volatile market conditions, picking up anomalies in the data and long-term trends that many traditional quantitative models could miss. Deep learning, an AI function that takes the technology to an even more advanced level, would further strengthen a model against chaotic data by allowing fund managers to see non-linear, complex patterns in asset behaviour. This leads to market view predictions of a much higher level, no matter how changeable market conditions become.

Asset management firms that don’t harness the superior analytical power of AI to meet their investors’ expectations will find themselves trailing behind the competition. 56% of hedge funds have said they planned to take advantage of machine learning in their trading process by 2021, and global investors were predicted to spend $900 million on alternative data by 2021 , almost doubling the 2017 spend.

 Implementing these innovative technologies will undoubtedly be a powerful and intuitive solution to the problem of meeting investors’ expectations of mitigated risk and higher returns. It will also allow asset managers to demonstrate a tangible difference in their strategies. Rather than risking the repeat of an inability to manage chaotic data during a market crash, a better and more efficient usage of available data will help to mitigate downside risks and generate alpha, no matter how unpredictable world events become.

 

Business

Four ways traders can manage risk

Published

on

By Dáire Ferguson, CEO at AvaTrade

 

Understanding the markets in which you are trading is incredibly important to optimising profit, as well as manging risk and loss. While trading can be incredibly lucrative, it can often be difficult to judge which way the market will move – especially when executing shorter-term traders, where unknown factors can cause unexpected movements. Being aware of the risks is vital to avoid unnecessary losses and to optimise the trading experience.

Dáire Ferguson

There are several techniques that can be employed to make sure the risks associated with trading are controlled, rendering the trading experience smoother and more enjoyable. From beginners to experts, having these tactics in your arsenal will enable traders to be savvier, and more confident.

 

Understanding the risks

To really be able to manage risk, it is imperative to understand the two types of trading risks.

 

Leverage

Leverage is where traders stake only a percentage of the value of the underlying asset they wish to trade on but accept exposure to the full value of the profit and loss that comes with the asset’s price changes. This enables traders to take sizeable positions for comparatively less trading capital, thus providing an opening for big wins and substantial rewards.

However, with this comes the risk of similarly significant losses. As an example, if a trader opens a £100 trade on an asset worth £1,000, using leverage of 10:1, this means that if the assets value increase by 10 per cent, the trader’s money will be doubled. But if it drops by just 10 per cent, the trader will lose all their stake. This balance of high risk and high reward necessitates careful management. Leveraging typically applies to purchasing and trading contracts for difference (CFDs).

Volatility

Volatility is characterised by unexpected fluctuations in the prices of assets and is defined as the rate at which pricing rises or falls given a particular set of returns. Volatility applies to all assets, but the regularity and size of price changes differs hugely across different asset groups. In fact, in some markets, volatility is actually predictable. The cryptocurrency market is well known for its fluctuations, characterised by frequent and, often, significant changes in price.

There are scenarios in which volatility can be desirable for some traders as it fosters greater profit margins. However, it also sharply increases the potential for large losses. Nevertheless, there are a number of ways to spot incoming market fluctuations. These include economic volatility, geopolitical tensions, and changing policies.

 

Managing the risks

 

Choose the right broker

So, what can traders to do manage these risks? The first step is to choose the right broker. Having the right broker can go a long way to limiting the risks that come with trading, including managing counterparty risk. For example, when you purchase CFDs, you are purchasing a contract with a broker – not the asset itself. Therefore, traders must be 100 per cent certain in the knowledge that the broker they’ve chosen to operate with is capable of making good on the value of that contract.

Traders who are just starting out on their trading journey should look to open a trading account with an established name that is well regulated in a variety of jurisdictions. Higher-quality brokers will generally have a wider range of risk management tools and offer better features, which will allow traders to manage the buying and selling of assets in a better, more sophisticated manner.

 

Take out protection on riskier trades

For new traders, or those who are looking for extra support, it is worth considering taking out protection against losses for a set period of time. Certain brokers offer risk management tools that provide thorough protection against such losses. These tools generally require just a small fee, not unlike the premium on an insurance policy. These risk management tools allow users to stay in the trade, riding out any short-term drops in value and benefitting from a positive overall momentum of the position. Therefore, if the market moves in a different direction to what was originally expected, users only lose the cost of purchasing the protection and can recover their losses.

 

Set-up stop-loss orders

Another form of protection against losses is through a stop-loss order. This is an instruction that is executed automatically when certain conditions are met. Therefore, stopping losses from falling below a certain point, and setting a limit on how much an investor can lose on a trade. In the case of a stop-loss order, the position is sold at a predetermined rate – below the current market price for a long position, or above the current market price for a short position.

Stop-loss orders remove the user from the trade at a set price drop. In comparison, risk management tools allow the user to ride out any short-term drops in value, with the potential to benefit from a positive overall momentum of the position.

 

Manage the capital-to-trade ratio

One simple way traders can reduce the risk of accumulating excessive losses is to keep their capital-to-trade ratio under control. This is the amount of capital left exposed to losses in trades compared to the total amount of capital traders have available to themselves.

A sensible rule for traders to follow is to not exceed a capital-to-trade ratio of 10 per cent, and not to risk more than two per cent of the overall capital on a single trade. This doesn’t mean always taking very small positions – it means traders should hedge their risks on whatever positions they choose to take.

It is important that before traders even begin to trade, they make sure that they understand the risks they face. Once they have taken the time to do that, they can begin to contemplate these four ways to manage those risks and then start trading. This is an exciting time to be entering the world of trading, and these considerations should ensure that the trading experience is as enjoyable and profitable as possible.

 

 

 

Continue Reading

Business

Out of office, home and away, moving up, moving on; when security goes AWOL

Published

on

By

Steve Bradford, Senior Vice President EMEA, SailPoint 

 

The financial services industry has one of the highest rates of insider data breaches, costing on average $21.25 million in the past year alone. Whether it’s an employee acting with malicious intent, or through accidental data mishandling, staff have access to sensitive information and systems that make them a constant vulnerability. And this threat only escalates when staff go on the move.

With the summer holiday season upon us, thoughts will be turning to well-deserved time off, travel and downtime. However, for many, especially in the financial industry, the notion of waiting until the summer months to sample a new life was not feasible. In the period following Covid, the industry has suffered at the hands of the Great Resignation as burnt-out employees left for new roles. As a result, research from PwC suggests that financial services leaders have had to prioritise employee retention amid the swathes of staff exiting.

This exodus is not just a threat to the workforce itself. It also results in greater threats to resilience, security and compliance. Ensuring that the doors to the organisation’s data are appropriately locked behind them is vital whenever employees are on the move. When a staff member leaves a bank or financial institution, security leaders must ensure they have not inadvertently handed over the keys to the safe as a leaving present. Revoking any and all access and privileges to company data must be a priority.

 

Don’t leave the door ajar 

Disorganised, ill-managed and manually-processed access requirements and identity management protocols are an open invite for security breaches.

However, it is not just those leaving for good that pose a threat. Recently promoted your long-serving payroll manager to a longed-for role in financial oversight? That positive move could result in entitlement creep, where the permissions to data, apps, information and systems she enjoyed in payroll follow her to her new home.

Permission creepers are those staff who collect permissions and access rights as they go through their career, picking up credentials to systems and data as they go. Of course, to restrict the opportunities for hacking, insider threat or illegal or incompliant activity, permissions should only be granted when relevant and required for an individual’s job. However, too many companies allow permissions to creep by not taking a proactive approach to access. This can result in toxic permissions combinations, where employees are granted inappropriate access to the systems, making fraud and error far more likely.

Even a simple summer holiday can provide an open-door opportunity. We are all conscious about signaling to would-be home burglars that we are going away on holiday, and we will take steps to protect our property in our absence. The same principle applies to businesses with staff out of the office on vacation – potentially logging in from insecure locations or signaling to cybercriminals that their attention is elsewhere.

The results of leaving the door ajar are costly. According to the IBM Cost of a Data Breach Report 2021, the average cost of a data breach in the financial sector is $5.72 million.

Permissions creep, unrevoked access and unmanaged identity provide the perfect conditions for the insider threat to propagate. As Gaurav Deep Singh Johar, of the Information Systems Audit and Control Association explained, “While these challenges are present in any institution, insider threats pose a greater risk for banks. There is a big reputational impact, thanks in part to increasing regulatory oversight.”

 

Don’t let permissions security set sail into the sunset

Financial organisations are complex landscapes, with labyrinthine corporate structures and siloes that cast a dark shadow over access and identity visibility. However, identity security technology is moving fast. Now, automated systems powered by AI and machine learning mean that permissions can be automated and access granted on a need-to-know basis, based on individuals’ employment status, roles, and responsibilities.

An automated system will quickly track down and disable ex-employees’ accounts and automatically halt permissions creep as employees move about the organisation.

The same technology can now also be even more diligent than that, monitoring access requirements based on any change in the workforce, like people being out of the office.

The evolving variety and fluctuating workforce mean that the insider threat can only be met with automated, streamlined identity security that moves as quickly as employees themselves. Without intelligent, streamlined identity governance, banks cannot ensure they are in a state of compliance, nor ensure cybersecurity in real-time. They also miss out on opportunities to improve operational efficiency and reduce the risk of fraud and error. Automation also ensures the accuracy and completeness of data sets so critical for keeping on top of compliance and delivering critical services.

As financial workforces are on the move, home and away and to pastures new, now is the time for banks to give identity security its time in the sun. Do not let shifting sands collapse the walls around you. Wherever your employees are coming from and going to, robust security and sustained compliance start with automated identity management.

 

Continue Reading

Magazine

Trending

Business20 hours ago

Four ways traders can manage risk

By Dáire Ferguson, CEO at AvaTrade   Understanding the markets in which you are trading is incredibly important to optimising...

Top 101 day ago

Pro Tips To Consider Before You Decide To Refinance Your Vacation

Refinancing debt is when you attempt to apply for a new loan or debt instrument. The goal is to get...

Finance1 day ago

The Rise of the Modern CFO: A Leader for the Information Age

Adam Zoucha, Managing Director, FloQast EMEA   Financial management is one of the oldest professions in the world, and for...

Business1 day ago

Out of office, home and away, moving up, moving on; when security goes AWOL

Steve Bradford, Senior Vice President EMEA, SailPoint    The financial services industry has one of the highest rates of insider...

Top 101 day ago

Looking to the future: How the insurance sector can meet new customer demands

By James Harrison, Head of Insurance at Dun & Bradstreet   It’s been over two years since the pandemic began,...

Business1 day ago

How IT optimisation can reduce costs and increase efficiency for businesses

by Alan Hayward, Sales and Marketing Manager, SEH Technology   In today’s digital world, business success is centred around technology....

The data literacy gap The data literacy gap
Business1 day ago

How Strong Customer Authentication can Prevent Cart Abandonment

Sham Careem, Telecom Solutions Consultant, Infobip   In 2020-21, UK residents and businesses lost over £2.5bn to fraud and cyber-crime....

News1 day ago

OneID® is now a certified Digital Identity Service Provider (ISP) under the UK Digital Identity & Attributes Trust Framework (DIATF)

OneID® is now a certified Digital Identity Service Provider (ISP) under the UK Digital Identity & Attributes Trust Framework (DIATF)...

News1 day ago

Lack of corporate disclosures forces asset managers to cast a wide net for ESG data

Buy-side financial services firms using an average of close to ten ESG sources today   More than seven out of...

Business1 day ago

Why mid-sized businesses are the driving force behind global B2B payment innovation

By Spencer Hanlon, Head of Europe, Nium   Change is coming to global B2B payments, and it is being heavily...

Business2 days ago

Finance brands need a new approach in the Privacy-first era

By Richard Wheaton, UK MD of global data company fifty-five   Trust is a brand value that pertains to every...

Finance2 days ago

Why You Should Work on Your Financial Literacy

Ebo Aneju   A lack of financial understanding plagues our society. Most people have very little understanding of finances, which...

Business3 days ago

A new beginning for financial services B2B marketing

Michael Richards, Managing Director, alan agency   Financial services B2B marketing is dead. A bold statement with B2B ad spend...

Finance3 days ago

Boosting Blockchain Security with Graph Technology

Dan McGary is Senior Sales Executive for Mid-Market Enterprise East at graph database leader Neo4j   As blockchain-backed cryptocurrencies become...

Business3 days ago

Need a business broadband package? Here’s what you need to know

Author: Kerry Fawcett, Digital Director at Radius Payment Solutions   Does your business have a broadband supply that is speedy,...

Finance3 days ago

Double and triple extortion tactics cornering financial services organisations

By Ian Wood, Senior Director and Head of Technology, UK&I at Veritas Technologies   Ransomware continues to keep those in...

Banking3 days ago

How are Variable Recurring Payments set to revolutionise the future of banking?

Sean Devaney, Vice President of Banking and Financial Markets at CGI UK   The adoption of Variable Recurring Payments (VRP)...

Top 103 days ago

Energy Storage Represents Latest Investment Opportunity in the Clean Energy Transition

Alan Greenshields, Director of Europe, ESS Inc.  The ongoing transition to clean energy has spurred new technologies, new markets and...

Business4 days ago

Innovate UK £25 million up for grabs: July deadline approaching

By Emma Lewis, Myriad Associates   The latest instalment of Innovate UK’s SMART grant competition was launched in April and...

Business4 days ago

Is telephone Hot Desking really needed anymore?

By Simon Horton, VP of International Sales at Sangoma   The world of work has totally transformed as we all...

Trending