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Artificial Intelligence and it’s Deployment within fund management

The past year has witnessed a massive explosion of interest in Artificial Intelligence (AI), not least driven by the hugely successful launch of OpenAI’s Chat GPT and Microsoft’s Copilot. Due to decreasing costs, the computational power being used to train AI models has doubled every six months since 2010, resulting in a massive increase in AI performance across several benchmarks, like image recognition, reading comprehension and language understanding – and exceeded human capabilities. Given the pace of the advances in AI, attention is focussing on the productivity benefits that will flow as well as the obvious potential threat to jobs, industries and sectors. As such, the use of Artificial Intelligence (AI) for investment management is much talked about. As with all new developments we believe it is wise to evaluate the benefits and

use any useful techniques on a step-by-step basis.

The main activities of an investment management company like Alpha Beta Partners (ABP) comprise of its investment process, marketing, back-office administration, and report production.

Tried and tested AI methodologies now exist to enhance cyber security across IT networks, to improve accuracy of accounting and provide insights to marketing. Indeed, generative AI models such as ChatGPT can now assist with content generation, enabling curation by experts delivering the final content.

ABP delivers cost-efficient portfolio management for independent financial advisers using a ‘Risk First’ institutional style of management. Our Core Range of portfolios comprise index-tracking investments in the form of high-quality exchange traded or index funds. Other ranges also include an element of active funds, specially selected in conjunction with The Adviser Centre. The portfolio management team uses advanced quantitative techniques that have proved successful over the past several years to frame dynamic asset allocation and to ensure portfolios align with investor suitability, on an ongoing basis.

The Investment Committee meets quarterly, or more frequently if market conditions require it, to make asset allocation decisions. These are based on information produced by our analysts including the expected risk and return of the current portfolio, a ‘scoreboard’ of forecast returns of asset classes, projected levels of market indicators, and macro-economic views consistent with these. Institutional-style models are used to further refine forecasts and produce balanced portfolios.

AI can improve the accuracy of forecasts and the production of optimal portfolios based on stringent risk profiles, as well as the monitoring of these on a real time basis. To do this AI can analyse textual as well as numerical information, including financial news. Machine learning and pattern recognition techniques can now be applied to provide indications on whether a particular risk level is due to short-term market moves or longer-term trends.

Using our proven approach of carefully testing technology before using it in practice, ABP will continue to harness the best methodologies available to enhance delivery of high performing, cost effective portfolios to clients.

John Reynolds & Shahid Chaudhri

John and Shahid both recently completed the Oxford Artificial Intelligence Programme. John is Chair of both ABP and the ABP Investment Committee and Shahid is Senior Advisor and former Chief Investment Officer of ABP. Both have collaborated on advances in asset allocation and the investment process since the early 1990’s. IMPORTANT NOTICE: This is a marketing communication from Alpha Beta Partners a trading name of AB Investment Solutions Limited. Registered in England at Northgate House, Upper Borough Walls, Bath BA1 1RG. AB Investment Solutions Limited is authorised and regulated by the Financial Conduct Authority. Reference No. 705062.

This material is directed only to Financial Advisers in the UK and is not an offer or invitation to buy or sell securities. Opinions expressed, whether in general or both on the performance of individual securities and in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice.

You should remember that the value of investments and the income derived there from may fall as well as rise and your clients may not get back the amount that they have invested. Past performance is not a guide to future returns.

Important Information
 

This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities.

Opinions expressed, whether in general, on the performance of individual securities or in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice.

You should remember that the value of investments and the income derived therefrom may fall as well as rise and you may not get back your original investment. Past performance is not a guide to future returns.

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