Machine learning in investment management



By: Bryan Bashaw

There are many new strategies and approaches in investment management today. While the industry debates active versus passive investing, machine learning investment algorithms have become a significant player. All these changes affect managers, investors, and vendors. Managers must now consider scalability and evaluate their long-term business strategies.

During a bull market, investors are hesitant to pay for actively managed portfolios when passive counterparts create a substantial return. Managers who believe active investing is superior must focus on managing money and “trim the fat” from their investment processes. To succeed, they need scalable investment management systems that automate processes so they can focus on managing assets. This presents a strong opportunity for vendors.

Some firms (e.g. BlackRock) are considering replacing portfolio managers with machine learning algorithms. This strategy completely removes emotional bias from investment decisions. The advantage is that these algorithms can make better decisions based on the outcome of historical decisions - the computers can draw from and process an infinite amount of data, which the human brain cannot do.

As artificial intelligence and machine learning capabilities advance, so will this trend. Firms and vendors that position themselves properly will ultimately benefit from greater returns via scalable programs and fewer expenses because the process will be automated. Vendors will need to position themselves correctly to provide the connectivity and data management capabilities needed to succeed.

Firms and vendors must consider how to adapt to the long-term effects of these changes. Vendors must also invest heavily in new technologies to support this paradigm shift. The FinTech space is crowded with firms vying for a part of the new business and incumbents must stay up to speed with enhanced technology to stay in the game.

Ultimately, end investors will benefit. Expenses will decrease as firms scale using technology; returns will increase as new investment management processes are put in place. It is a great time to be on the ground floor of this shift as opportunities are bound to increase.

The front- to back-office capabilities from Global Wealth Platform (GWP) allow managers to automate their day-to-day portfolio activities. Offered as a SaaS/cloud service, GWP is a multi-currency, multi-asset class solution with several functions including portfolio and order management, trading, compliance (pre and post), portfolio accounting, data management, performance measurement, client reporting, contact management, custodial data aggregation, and more.

To learn how GWP can automate your investment operations, download brochure, request a demonstration, or email bbashaw@sscinc.com.