Most investment managers would try almost anything to get a little more return for their portfolios – from the adoption of computers for data analysis to algorithmic trading, asset managers have embraced innovation to stay ahead. As we step into the age of artificial intelligence, investment management is on the brink of another transformative phase. AI’s potential to revolutionize the industry is immense, promising to streamline processes, generate unique insights, and optimize portfolios. Here, we’ll walk through the most disruptive use cases of artificial intelligence for investment managers.
AI promises time savings measured in days and weeks, not hours
AI will continue to be a game-changer when it comes to equity research. Time savings is the most obvious benefit of using AI for research, for fundamental managers or quants, from a micro and macro perspective.
Fundamental managers don’t have the time, inclination, and sometimes resources (AI can be expensive, both from a person hours perspective and a data and computational power perspective) to build their own AI solution. For fundamental managers, ready-to-use AI tools offer twofold benefits: greatly increasing their adoption velocity by using an AI solution that works (versus the R&D involved in building their own), and also, by using its advanced processing power to comb data to isolate interesting trends and opportunities much faster than an individual could.
For quants, using a multitude of AI tools to swiftly construct complex AI strategies tailored to their firms’ investing preferences provides uncorrelated sources of alpha.
Much of what artificial intelligence does could – in theory – be done by enough people with enough calculators and enough access to data. The benefit of AI, as mentioned above, is taking this work and slashing the amount of time it takes to complete. Investment managers used to have to create detailed Excel spreadsheets to model out their portfolios, including possible risks. Now, those same managers can upload their portfolios through the cloud to AI software that does this work for them. They remain in the driver’s seat in terms of decision making, but AI can help isolate trends faster, more easily, and more efficiently than they can on their own.
Running experiments or testing investment theses can now be done in minutes, not days or hours. Where once an investment manager had to focus on one or two ideas at a time, poring over spreadsheets, reports and newspapers, now they can test dozens at once. We have spoken to clients that believe implementing AI has allowed them to more than quadruple the number of ideas they test at once.
AI isolates portfolio risks for investment managers
For investment managers to get the most out of their AI tools, they should provide information on their current portfolio holdings and their investment preferences. This gives the AI the ability to optimize for a user’s specific needs. By analyzing an investment manager’s portfolio holdings and considering their investment preferences and limitations, AI tools can offer personalized insights and alerts. These alerts can signal when the portfolio is over or underexposed in certain areas, helping investment managers maintain a well-balanced and diversified portfolio.
Artificial intelligence can now answer the common questions investment managers have:
- “What stocks should I buy and why?”
- “What is going on with this stock? What is going on in the broader market?”
- “What risks am I taking in my portfolio and how can I position myself to take advantage of market trends?”
It does this by combining macro insights from news and text sources like a company’s 10-K and 10-Q reports with financial data like stock pricing and interest rates, using finance-specific algorithms and portfolio construction techniques to produce personalized portfolios that are risk appropriate. Additionally, AI can continuously assess portfolio risk and alert managers if they surpass specific risk tolerance thresholds, enabling them to take prompt actions to mitigate potential downsides.
AI gives a holistic whole picture view of investment manager’s portfolios so they can make better, data-driven decisions
Having an AI-powered view of their own portfolio helps investment managers make better, data-driven decisions. They can look at their portfolio from a micro perspective – using AI to decide on an individual stock level what they should buy, and if it fits their investment style. They can look from a macro perspective – understanding what is going on in the world and how they are positioned for it. And they can even understand on a portfolio level, the risks they are taking and how they can improve their book.
AI that is purpose made for investment management allows asset managers to have extremely high conviction in their decision making process because it combines all these views into one cohesive story. It also takes market data – stock prices, Fed data, ESG ratings, other alt data, and more, and combines it to help an investor truly understand what drives markets.
The integration of artificial intelligence into investment management represents a transformative shift for the industry. Investment managers are poised to benefit significantly from AI’s capabilities, as it will not only save time on research but also offer fresh perspectives and novel investment ideas.
While AI holds tremendous promise, it is crucial to remember that its implementation should be a collaborative effort between human expertise and technological prowess. At Boosted.ai, we believe that the best results will arise when investment managers embrace AI as a tool to augment their decision-making, leveraging its analytical capabilities to complement their own experience and intuition. The future of investment management lies in the synergy of human intelligence and AI-driven insights, driving the industry towards more efficient, informed, and successful investment strategies.If you’re interested in learning more about how Boosted Insights is helping investment managers optimize their portfolios using AI, you can reach out to us here.