AI, the future of investment management?
CFA Institute recently co-hosted a conference with CFA Society Beijing, which was also livestreamed around China, to discuss and, dare I say, speculate on the impact of artificial intelligence (AI) on our industry. As you can imagine, this sparked some lively debate and the consensus was that although the investment management business is not going away any time soon, AI will have a profound impact on the way we invest in the future.
The industry is changing, and we need to recognise that the current model will be rendered obsolete – it is just a question of how and when we will adapt to bring better service to our clients, and what our best strategy is in the interim.
We are still witnessing the very beginning of the AI era. For example, I was particularly interested to hear about how the computer programme AlphaGo defeated the world’s top player in the complex Chinese board game of “Go” last year. Even more shocking, AlphaGo Zero, the version developers have designed to just play against itself without the aid of any historical game data, beat AlphaGo in 40 days.
People have been playing Go for millennia, yet all the human wisdom accrued during those countless hours of competition across the continents and throughout history turned out to be no rival to an AI programme with 40 days to itself.
Of course, AI’s footprint is not limited to board games. Its imprint can be seen in countless industries. AI-powered programmes can now recognise images better than humans; the 2017 ImageNet competition showed that the AI programmes could beat human records by an increased margin.
Last year, Google and Microsoft speech recognition programmes transcribed as accurately as humans. And an AI programme at the University of Nottingham can predict strokes and heart attacks more precisely than doctors.
While machine learning may be a relatively new term for the financial industry, neural networking is well recognised, particularly in quants.
Deep learning is among the hottest buzz words today. Deep learning is basically multilayer neural networks – programmes that process the initial input in multiple stages to generate the final output. Each stage takes the output of the previous stage as the input. These offer our industry huge opportunities to outsource the mundane or tedious and focus on the quality that clients need.
Possible applications of AI in the financial industry are numerous. Many collaborations have begun between powerful financial institutions and technology companies, such as the recent agreement between ChinaAMC and Microsoft. Accounting firms EY and PwC are testing drones that use AI in their audit work. JPMorgan’s COIN programme has performed 360,000 hours of finance-related work in a few seconds.
AI could impact the entire value chain – from sentient, real time optimisation of sales and marketing interactions and client services to financial analysis, predictive market modelling, and self-running exchanges.
AI is now able to bring the best of passive and active investing worlds into one portfolio. The ability to trade risk and reward instantly could revolutionise asset management, enabling institutional investors and fund managers to take complex positions in markets while maintaining a high-level ratio of stable and growth investments.
