Investment managers' life are being significantly impacted by technology, just as in all other sectors of financial services.

Investment managers now have to supply the insights that clients want, utilizing AI, ML, and Big Data to offer new services like algorithmic trading and robo-advisory tools. Previously, their success depended on reputation and trust.

We talk to professionals in the field about how technology is changing the job of investment management in this roundtable.
 

Our speakers:

• Julie Cunningham, Portend's founder and CEO
• Jamil Jiva, Linedata's Global Head of Asset Management
• Capital Markets & AI Consultant Ronan Donohue is the founder of Q4 Capital Advisors.
• Boris Redfern, Levenue's Head of Buy Side
   

How can investment managers' risk management, portfolio optimization, and investment research be revolutionized by big data, AI, and ML?

Julie Cunningham, Portend's CEO and founder:

Machine learning, artificial intelligence, and big data are essential for transforming risk management, portfolio optimization, and investment research. The days of relying solely on trust in the post-investment environment to build investment relationships are long gone.

We can now use these technologies to give real-time insights, optimize investment portfolios, and efficiently manage risks by utilizing advanced data analysis and predictive analytics. 

Fund managers can now make well-informed investments and, more crucially, keep a close eye on their assets with early-warning systems in place in case something goes wrong, thanks to real-time data and insights. Furthermore, automation streamlines procedures, opening the door to proactive solutions and giving VCs and investors the capacity to make well-informed decisions.

With the use of our in-house platform, Portend's technologies enable us to enhance the post-investment environment throughout the value chain by offering real-time due diligence to both venture capitalists and startup owners. In the end, this improves investment results and fosters an accountability and transparency culture inside the venture capital business.

Jamil Jiva, Global Head of Asset Management, Linedata:

Investment managers may now more quickly access a greater range of information thanks to artificial intelligence, which helps them spot early warning signs that indicate when to leave a firm that is experiencing difficulties, buy into successful companies sooner, or stay away from companies that will make them lose money.

They may use it to cut down on the number of hours it takes to thoroughly analyze a business using publicly accessible data, especially corporate publications, to less than one hour.

They may utilize all the available data to more correctly estimate future performance using predictive analytics, and they can receive early portfolio warnings from news sources thanks to natural language processing and generative AI capabilities.

Furthermore, more individualized portfolios that better take into account the limits and preferences of customers as well as satisfy their performance expectations may be created using generative AI, machine learning (ML), and recommender systems.

Leveraging these characteristics allows for a scale that was previously unattainable, which is the main advantage.

How can investment managers simplify tax strategies, asset allocation, portfolio rebalancing, and guidance by utilizing robo-advisory services?

Jamil Jiva, Global Head of Asset Management, Linedata:

Robo-advisors are completely automated online platforms that use statistical models and algorithms to provide portfolio management and financial advice. In addition to providing continual monitoring and assessment, their services also include investor screening, client onboarding, and the implementation of investment plans based on risk profiles.

These systems generate portfolios using mean-variance optimization, and they can automatically rebalance them depending on goal weights. They can also collect tax losses to offer tax-efficient solutions.

Because they offered low-cost, diverse investment options with only a button click and enabled real-time account access through websites or smartphone applications, robo-advisors gained popularity among the tech-savvy Millennial and Gen Z populations. Their clientele has even expanded to include those in their mid-forties.

For instance, in order to create portfolios that satisfy client requirements and investing preferences, our customised portfolio solution is capable of managing thousands of dollars spread over many stock classes.

During the creation and rebalancing of portfolios, AI is specifically used to explain allocation and suggest funds that best meet client expectations. This is done by utilizing all the data that we have on the client, including their demographics, risk profile, preferences, constraints, and past investments as well as market and product information.

Furthermore, by utilizing the investment firm's knowledge base, Gen AI can now provide clients extra financial and investing guidance. The adviser of the future is the one who is enhanced by AI-based portfolio recommenders and a Gen AI copilot.

Robo-advisors have gained a lot of traction due to their cost benefits, which have aided in financial inclusion. It is a fantastic addition to investment managers since it gives them the ability to service a larger clientele, which includes wealthy individuals with less complicated investing demands as well as mass affluents.

Passive investing techniques, which use ETFs for exposure, are far more efficient for these investors than active strategies, which come with extra fees and charges. Investment managers can switch these investors over to a human adviser if their net worth increases and their circumstances get more complicated in order to assist them in managing their financial destiny.

Boris Redfern, Head of Buy Side at Levenue:

Above all, the investment industry is a people business. The real added value of financial advice is the trust that exists between the adviser and the client; for certain investors, particularly the elderly, this trust may even be more important than net performance. Having said that, there are several ways in which investment managers might use robo-advisory services to improve operational efficiency:

- Advice: Investment managers may offer specialized suggestions effectively and at scale with the help of robo-advisors, which offer automated, individualized financial advice based on algorithms that evaluate each investor's goals, risk tolerance, and profile.

- Asset Allocation: These services provide a diversified portfolio that is in line with the client's goals without the need for manual intervention by using sophisticated algorithms to identify the best asset allocation based on an investor's risk profile and investment horizon.

- Portfolio Rebalancing: Robo-advisors automatically keep an eye on and alter portfolios to maintain the appropriate asset allocation, taking into account shifts in the client's situation as well as market volatility. This ensures that the portfolio stays in line with investment objectives.

- Tax Strategies: Investment managers can incorporate tax-efficient strategies, such as asset location optimization and tax-loss harvesting, into their service offerings to improve client outcomes. These strategies can help investors minimize their tax obligations and maximize their after-tax returns.

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

Jamil Jiva, Global Head of Asset Management, Linedata:

There are benefits and drawbacks to algorithmic trading, but the primary advantage is the speed at which decisions may be made. It is better than humans in reacting quickly to market inefficiencies and snatching profits that would otherwise be unattainable.

Furthermore, compared to humans, AI is less susceptible to emotional biases that might erode gains or exacerbate losses.

Lastly, artificial intelligence (AI) has the ability to process far more data than a human could, allowing it to identify patterns that algorithmic trading might use to help it make quicker and more accurate judgments.

It is not a magic bullet, either, as algorithmic trading can also be held accountable for significant losses or misses.

What more can investment managers do to foster sustainable practices?

Jamil Jiva, Global Head of Asset Management, Linedata:

Encouraging sustainable practices might have short-term negative effects since they could be more costly. But without investment, we will never reach that stage, and eventually the losses brought on by unsustainable methods will outweigh this added expense.

Investment managers ought to keep funding businesses that support these environmentally friendly initiatives. They must search for them, make investments in developing tools and frameworks to find the businesses that live up to their promises, and make sure that the businesses in which they invest set up strong governance structures to achieve their goals.

Lastly, they must evaluate a company's conformity with regard to environment, social, and governance, as well as how they handle issues that have an impact on them.

Boris Redfern, Head of Buy Side at Levenue:

At a recent roundtable I attended, a highly experienced PM from a reputable investment management organization stated something that bordered on sacrilege: "The term ESG is completely outdated, in fact, it's useless." Sustainability ought to be our main priority."

Whispers were muffled. Looking back, it's clear that she was spot on. ESG is quickly becoming irrelevant since it is such a general religion with no focus. Sustainability should be the primary consideration in every investing process, not only one that is blindly obeyed by a wide mandate like ESG.

Good governance is becoming more and more rare in companies. To encourage sustainable business practices, such as lowering carbon footprints, strengthening corporate governance, and improving labor standards, investment managers should actively interact with the businesses in which they make investments.

Investment products with a special focus on sustainability, such as impact investing funds, SRI portfolios, and green bonds, can also be developed and offered by IMs. They are able to guarantee that the sustainability effect of their investments is transparently reported.

Moreover, it is the duty of investment managers to inform their clientele about the significance of sustainable investing and the long-term advantages of incorporating sustainability techniques, therefore promoting the prioritization of sustainability in investment choices.