- This article explains how artificial intelligence and conventional automation are transforming the portfolio management industry.
- The information is aimed at asset managers looking to understand which technological trends will shape the future of portfolio administration.
- At FlexFunds, we securitize assets to issue exchange-traded products (ETPs) that can enhance diversification and liquidity in investment strategies. For more information, feel free to contact our team of experts.
Although portfolio management is an age-old discipline that has existed practically since capital markets began developing in the 20th century, today it is radically different from what it was in its early days.
The main driver of this change is technological advancement. Over the past 30 years, new methods of data analysis and risk management have emerged, reshaping the way all stakeholders in portfolio management operate.
In the last decade, particularly in the past five years, innovative systems and principles have surfaced, steering the industry toward yet another paradigm shifts for the future.
The impact of artificial intelligence
Artificial intelligence (AI) is not only used for consumer applications such as image generation or content translation, but it also offers highly sophisticated and practical solutions in the advanced field of portfolio management.
For example, AI makes it possible to analyze vast amounts of data based on specific criteria selected by asset and portfolio managers, allowing them to assess companies’ financial ratios, draw conclusions from their financial statements, study variations, and even generate reports.
According to the Corporate Finance Institute (CFI), “AI is also transforming financial review processes, enabling more efficient monthly and quarterly reviews through automated horizontal and vertical analysis.”
Moreover, AI can evaluate risk-reward relationships across different asset groups and offer alternatives with similar characteristics.
“Another popular AI technique in portfolio construction is evolutionary algorithms that have the flexibility to accommodate more complex asset allocation problems. For example, evolutionary algorithms solve optimization problems under cardinality constraints (restricting the number of assets in the portfolio) and maximum or minimum holding thresholds,” adds the CFA Institute.
Increased automation
Thanks to AI and other âconventionalâ technological tools, the portfolio management industry is becoming increasingly automated, reducing the need for constant human intervention beyond supervision.
One of the most evident applications is automated messaging, which can instantly respond to basic investor inquiries.
This way, human interaction is reserved for the most complex and important matters, saving time, energy, and costs.
Additionally, at a more basic level, automation plays a role in generating monthly reports. People in charge of portfolio management can detail progress, results, and the current status of specific portfolios in just a few clicks, simplifying investor reporting.
Furthermore, in secondary market trading, automation – often powered by AI – facilitates buying or selling assets when prices reach predefined levels.
“Computers can respond instantly to indicators that satisfy their algorithm and allow for much faster transactions and more orders to be made in a shorter amount of time and with more precision,” notes the CFI.
Tangible benefits
Both conventional automation and the exclusive use of AI-driven systems are here to stay, primarily because they are generating tangible benefits.
Executives now have more time to strengthen client relationships and focus on tasks beyond the reach of technology, while financial firms have also achieved cost savings.
For instance, a report by The CFO titled Freedom within fences: Autonomous sourcing goes mainstream found that automated management led to immediate savings of 20% for companies like Fidelity Investments.
Technology and customization
It is also important to highlight that portfolio management is advancing through alternative distribution methods such as asset securitization, which enables the creation of exchange-traded products (ETPs) with their own ISIN/CUSIP codes.
At FlexFunds, our asset securitization program provides multiple advantages:
- Expands the potential client base.
- Facilitates access to alternative funding sources.
- Enhances diversification for clients.
- Optimizes liquidity in investment strategies.
FlexFunds is backed by internationally renowned service providers such as Interactive Brokers, Bank of New York, Bloomberg, and Morningstar, among others.
For more information about FlexFundsâ ETPs and securitization process, feel free to contact our team of specialists.
Sources:
https://corporatefinanceinstitute.com/resources/fpa/ai-for-financial-analysis
https://www.cfainstitute.org/sites/default/files/-/media/documents/book/rf-lit-review/2020/rflr-artificial-intelligence-in-asset-management.pdf
https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/automated-trading-systems
https://the-cfo.io/wp-content/uploads/2024/07/HFS-POV-2024-autonomous-sourcing-goes-mainstream-1-1.pdf
