Fund managers are in an unusual position to study most aspects of society – from commerce and politics through to technological trends. They look for both fallout risks and opportunities. The current forces on societies around the world offer up a mine of opportunities, but also a minefield of risks.
AXA Investment Managers, a global fund manager operating across asset classes, with some semi-autonomous affiliates, made a series of presentations in Australia last week on: “Artificial Intelligence and Alternative Data for Financial Services – applications and aspirations”.
The theme is not brand new but AXA IM has gone further with its research than most other big managers and it has a pedigree in independent analysis which should make everyone stop and listen.
A quick bit of history: French-based AXA acquired its first, 60 per cent, stake in US-based Rosenberg Institutional Equity Management in 1998 and then the final stake in 2010. The firm was founded in 1985 by Barr Rosenberg, a pioneer in computer-driven risk management and investment analysis. He had previously established the influential research and analytics firm of BARRA, now a part of the MSCI Group. Way back in the 1970s, he came up with the term “bionic beta”, which is pretty much what we today know as “smart beta”. AXA retained not only the Rosenberg name, through its affiliate Rosenberg Equities, but also the research culture.
In their presentations last week, Mark Tinker and Michael Kollo tended to play down the uniqueness of the current environment. Innovation has been going on, perhaps, forever. Tinker believes it’s a continuum back at least to the industrial revolution. As a small example, he says: “We don’t have typing pools any more.”
Tinker is the head of Framlington Equities, Asia, another affiliate, and Kollo is the chief quantitative strategist and deputy head of research at Rosenberg Equities.
They say, quoting ‘The Economist’ newspaper from last year, that the world’s most valuable resource is no longer oil, but data. But gathering data can be challenging, as well as thinking about all the things you can do with it.
The trend is from the application of Intelligent Automation (IA) towards the application of Artificial Intelligence (AI). Automation makes businesses more efficient and big data analytics make them smarter. AI will make them smarter still. But you’ll have to invest to compete.
Investment opportunities will appear all along the way.
AXA Rosenberg is developing machine learning to find correlations between companies that lead to new ‘buys’ and ‘sells’. The machines assign probabilities from pattern recognition. Understanding how machines ‘think’ could open up a new world of investment styles. The firm has set up a unit called “FinAlternatives” to integrate AI into investment processes.
Another example is the use of natural language processing to quantify a company’s “language” through annual reports and CEO calls and so on, to quantify its culture.
Kollo sees it as the melding of language with mathematics. It’s actually looking at what elements in our humanity that can be taken and automated. It can make people feel “very uncomfortable”, he says.
For the commercial world as a whole, what we are witnessing is the “hollowing out” of industries, where the middle part of the chain gets removed and replaced with a computer or robot. But, for the time being at least, the upper part of the chain, the decision makers, are staying to make or oversee the decisions taken from the data. No-one is as yet comfortable enough to do away with those people.
The transition from IA to AI will come when the commercial world stops thinking primarily about using technology to reduce costs and moves to considering the whole value proposition. The questions are: which industries are at the forefront, which companies are too, and which ones are not?
AXA IM launched a “robotics and automation” fund in Japan two years ago, which proved to be very successful for capital raising. It followed this up with a unit trust version last year. A lot of the “robotics stocks” are being analysed for investment by health industry and other industry analysts.
Tinker adds that it is not all bad news for workers. Robots enhance both efficiency and safety. Some of the returns go to labour, he says.
– Greg Bright