Author: Level E Research – leveleresearch.com
Most of the largest investment management firms are investing in AI. In 2017 BlackRock Chairman and CEO Larry Fink told CNBC that his ultimate goal is to build artificial intelligence to ‘ultimately invest better than humans’. Since then the BlackRock Lab for Artificial Intelligence has been established in Palo Alto, California. Examples of how Blackrock is using AI today include:
- Signal generation – analysing over 5,000 earnings call transcripts every quarter and more than 6,000 broker reports every day, transforming unstructured text into proprietary measures of trending analyst sentiment
- Trade execution – capturing electronic trading data to help identify transaction cost patterns to inform decisions on how to reduce latency, cost, and market impact.
- Risk management – developing investment risk models at security and portfolio level and a liquidity risk model to estimate average daily volumes
Other large firms such as Bridgewater, Man Group, Vanguard, State Street, Fidelity Investments and JP Morgan as also researching, testing and developing AI capabilities. Is this some form of arms-race amongst the largest players?
In his March 2020 letter to shareholders Larry Fink opined that ‘the biggest change for asset managers will be how we use technology. In the future, asset managers have to be as good at using technology as anything else they do – and as good at it as any tech firm.’
Some believe the future has already arrived. But who will succeed? Will it be the asset manager behemoths or nimbler fintechs that deliver the next generation AI investment management platforms?