Modern Technologies Revolutionising Investment Management

Much like all areas of financial services, technology is making a big impact on the lives of investment managers. 

Once reliant on trust and prestige, today investment managers need to deliver the insights investors crave, leveraging AI, ML and Big Data to provide new types of services – from robo-advisory tools to algorithmic trading. 

In this roundtable, we speak to industry experts on the ways technology is transforming the role of investment management. 

Our speakers: 

• Julie Cunningham, Founder and CEO of Portend
• Jamil Jiva, Global Head of Asset Management, Linedata
• Ronan Donohue, Capital Markets & AI Consultant, Q4 Capital Advisors Founder
• Boris Redfern, Head of Buy Side at Levenue

How are big data, AI and ML helping revolutionise investment analysis, portfolio optimisation and risk management for investment managers?

Julie Cunningham, Founder & CEO of Portend:

Big data, AI and machine learning are crucial in revolutionising investment analysis, portfolio optimisation and risk management. Gone are the days when investment relationships were only based on trust in the post-investment environment. 

Today by leveraging advanced data analysis and predictive analytics, we can utilise these technologies to deliver real-time insights, optimise investment portfolios and effectively manage risks. 

Fund managers now have access to real-time data and insights which not only allow them to make informed investments but more importantly to properly monitor investments directly with early-warning systems when things go wrong. In addition to this, automation simplifies processes, enabling proactive solutions and empowering investors and VCs with informed decision-making capabilities. 

At Portend, these technologies allow us to improve the post-investment environment across the value chain, using our proprietary platform to provide real-time due diligence for VCs and startup founders alike. This ultimately enhances investment outcomes and promotes a culture of transparency and accountability in the VC industry.

Jamil Jiva, Global Head of Asset Management, Linedata:

Artificial intelligence enables investment managers to source a wider amount of information faster to identify early signals to either invest earlier in successful companies, leave earlier if a company faces challenges or avoid companies that would result in losses for them. 

It can help them reduce the time to analyse in detail a company from publicly available data, in particular corporate publications, from a few hours to less than an hour. 

Thanks to natural language processing and generative AI capabilities, it can help them get early portfolio alerts from news and they can also use all the available data to predict future performance more accurately with predictive analytics. 

Additionally, generative AI, Machine Learning (ML) and recommender systems can be used to create more personalised portfolios that both meet the performance expectations of clients while considering better their constraints and preferences.

The most fundamental benefit of leveraging these capabilities is that it enables a scale that could not be achieved before.

How can investment managers leverage robo-advisory services to streamline advice, asset allocation, portfolio rebalancing and tax strategies?

Jamil Jiva, Global Head of Asset Management, Linedata:

Robo-advisors are fully automated digital platforms that offer investment guidance and portfolio management services based on algorithms and statistical models. Their services include client onboarding, investor screening, implementing investment strategies based on the risk profile and their ongoing monitoring and evaluation. 

These platforms use mean-variance optimisation to create portfolios and have the ability to automatically rebalance them based on target weights as well as provide tax-efficient solutions through tax loss harvesting.

Robo-advisors became popular with the Internet-savvy Millennial and Gen Z populations by allowing real-time access to their accounts via website or smartphone apps and providing low-cost and diversified investment solutions, all via the click of a button. Their popularity has even grown amongst clients in their mid-40s.

Robo advisory was in its infancy, but the combination of ML, advanced optimisation and Gen AI now enables personalised advice that is both at the level of expectations of the advisors and their clients.

For example, our personalised portfolio solution can manage several thousands of funds across several equity classes to build portfolios that meet customer constraints and investment preferences. 

AI is used in particular to explain the allocation and to recommend the funds that best meet the expectations of the clients during portfolio creation and rebalancing, leveraging all the information we have on the client (demographics, risk profile, preferences, constraints, objectives, past investments, tax constraints, etc.), on the market and each product. 

Additionally, Gen AI can now provide additional investment and financial advice to the clients leveraging the knowledge base of the investment firm. The advisor augmented with a Gen AI copilot and AI-based portfolio recommenders is the advisor of the future.

Cost advantages have created a significant momentum for robo-advisors, as it has contributed to financial inclusion. It is a great complement to investment managers, as it allows them to serve a bigger client base including the mass affluents and affluent investors whose investing needs are not very complex. 

For such investors, passive investment strategies that leverage ETFs for exposure are much more efficient, compared to active strategies which involve additional fees and costs. As these investors’ net worth improves and their situation becomes more complex, investment managers can transition to a human advisor to help them navigate their financial future.

Boris Redfern, Head of Buy Side at Levenue:

The investing business is a people business first and foremost. The true added value of investment advice is the trust between client and advisor, and this can even outweigh net performance in terms of importance to some investors, especially older investors. With that said, investment managers can leverage robo-advisory services to streamline their operations in the following ways:

- Advice: Robo-advisors provide automated, personalised financial advice using algorithms that assess individual investor profiles, goals and risk tolerance, enabling investment managers to deliver tailored recommendations efficiently and at scale.

- Asset Allocation: These services use advanced algorithms to determine optimal asset allocation based on an investor’s risk profile and investment horizon, ensuring a diversified portfolio that aligns with the client's objectives without requiring manual intervention.

- Portfolio Rebalancing: Robo-advisors automatically monitor and rebalance portfolios to maintain the desired asset allocation, adjusting for market fluctuations and changes in the client's circumstances, thereby ensuring that the portfolio remains aligned with investment goals.

- Tax Strategies: Robo-advisory platforms can implement tax-efficient strategies such as tax-loss harvesting and asset location optimisation, helping to minimise tax liabilities and improve after-tax returns for investors, which investment managers can integrate into their service offerings to enhance client outcomes.

Walk us through the perks of algorithmic trading for investment managers.

Jamil Jiva, Global Head of Asset Management, Linedata:

Algorithmic trading has pros and cons, but the main pro is the speed of decision that algorithmic trading enables. At high frequency, it has an advantage on humans to react to market inefficiencies and to capture gains that would not be possible otherwise. 

Additionally, AI has fewer emotional biases in comparison to humans that could increase losses or undermine gains.

Finally, with the capacity to be fed with much more information than any human could, AI can capture signals that could be leveraged by algorithmic trading to make better and faster decisions. 

However, it is not a silver bullet as big losses or big misses can also be attributed to algorithmic trading.

What more can investment managers do to foster sustainable practices?

Jamil Jiva, Global Head of Asset Management, Linedata:

Fostering sustainable practices may come with short-term drawbacks as sustainable practices may be more expensive. However, without investment, we will never get there and at some point, the losses resulting from unsustainable practices will overcome this additional cost. 

Investment managers should continue their investment in companies that are investing to enable these sustainable practices. They need to look for them and invest to develop frameworks and technologies to identify the companies that deliver their promises and ensure that the companies they invest in put in place solid governance mechanisms to meet their objectives.

Finally, they need to assess the consistency of a company across, environment, social and governance as well as the way they address the controversies that affect them. 

Boris Redfern, Head of Buy Side at Levenue:

A very experienced PM at a well-regarded investment management house said something quasi-sacrilegious at a recent round table I attended: "The phrase ESG is completely outdated, in fact, it's useless. We should be focussing on sustainability." 

Hushed whispers ensued. She was obviously absolutely right, on reflection. ESG is such a broad church and so lacking in specificity that it’s fast losing any relevance. We must put sustainability first at the heart of any investment process rather than being slavishly tied to a broad remit like ESG.

Companies without good governance are increasingly rare. Investment managers can actively engage with the companies they invest in to promote sustainable business practices, such as reducing carbon footprints, improving labour practices, and enhancing corporate governance. 

IMs can also develop and offer investment products specifically focused on sustainability, such as green bonds, impact investing funds, and SRI portfolios. They can ensure the provision of transparent reporting on the sustainability impact of their investments. 

Furthermore, IMs have a responsibility to educate clients on the importance of sustainable investing and the long-term benefits of integrating sustainability investment strategies, encouraging the prioritisation of sustainability in investment decisions.

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