Francesca Campanelli, CCO, AxyonAI


Artificial intelligence is already a widely used technology in the financial services sector, but is it really being used to its full potential within asset management? The value of AI and machine learning to portfolio management and hedge funds is vast, and as 2021 continues to race ahead, the most successful asset management firms are harnessing AI in order to reassess their way of working and drive returns.

The COVID-19 pandemic hit hard, and almost every industry was forced to re-evaluate their processes. And as the global crisis shone a spotlight on current practices, the need for digital transformation and rapid innovation was suddenly very real and urgent.

In particular, the limitations of traditional investment strategies like quantitative models, where forecasting decisions are based around structured data, became apparent during this period of extreme volatility. The demand for investment strategies and risk management that use AI and machine learning, particularly deep learning, has therefore never been higher.


The successful asset manager in the ‘new normal’

During pandemic many investors lost confidence in those asset managers that struggled to keep up with volatile market conditions. Rebuilding that confidence is critical, and advanced AI systems, with their ability to identify data anomalies and trends that traditional quantitative models might not, is a valuable way of doing that.

Deep learning, with its ability to identify complex anomalies easily and rapidly, in a fast-moving market, will therefore be essential for asset management firms looking to thrive and grow as we settle more into the new normal. On top of helping to rebuild confidence lost in the wake of the pandemic, this type of advanced AI will keep firms resilient in the case of future global crises leading to market crashes.

Making the most of AI and machine learning will undoubtedly give asset managers a competitive advantage as they use the information that AI helps them extract to make faster, more accurate decisions. The insights gleaned will also be vital in helping them to put together actionable next steps and tactics for investment decisions, both now and in the future.

Moreover, strategies developed based on AI insights and tools are sharper and more successful at mitigating risk, giving an alternative method of generating alpha in the investment process, no matter how unstructured the data being used.


AI and its transformative role for asset management firms

Advanced AI technology is unrivalled when it comes to portfolio management and detecting anomalies in the market. A human element in managing portfolios and mitigating risks can be invaluable, but where it falls down is in being able to handle high volumes of dense, noisy data, and using patterns to successfully predict where markets are headed.

When markets are affected by an unpredictable event, such as the COVID-19 pandemic, AI technology gives asset managers a head start, meaning they’re more successful at reducing earlier market exposure.. And it’s more than just alerting firms to potential risks, advanced machine learning is able to qualify its predictions and how certain those predictions actually are. That extra layer allows asset managers to be even more secure in their portfolio management strategies.

For all these reasons, a recent Funds Europe survey showed just how much the asset management industry is looking to focus on technology and AI over the coming year. More than half of the asset managers surveyed (56%) say that tech and data infrastructure will be focus of investment over next 12 months, and 83% say they will extend strategic alliances with asset servicing tech partners. At the same time, 60% say it’s important to augment human expertise into AI models.


AI and good data management goes hand-in-hand

We know that good data management is important, and harnessing AI and machine learning to bolster investment strategies strengthens how asset management firms work with data – and also their requirement for data that’s high-quality and accurate.

AI models can show a lot about the market, and make detailed, accurate predictions that support asset managers as they drive successful returns, but the data being handled has to be as relevant and precise as possible. AI technology can help with this, in part by improving data management techniques to make sure the best and most profitable results are extracted from data sources.

While COVID-19 and its resulting impact on the global economy couldn’t have been predicted, advanced AI technology like deep learning can look out for anomalies that can give asset management firms the information they need to foresee extreme volatility – whether it comes from a future pandemic, or a scenario that we have yet to even imagine.


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