Arabesque has launched what it says is the world’s first fully Artificial Intelligence (AI)-powered portfolio manager that emulates the human decision-making process to deliver actively-managed sustainability strategies.
AI is a suite of technologies and capabilities that exhibit human-like intelligence and which, when adopted, can enable firms to deliver new kinds of value and reshape operating models. AI allows investors to collect and analyse vast volumes of data when accounting for environmental, social, and governance (ESG) risks and opportunities.
“Investment firms face a fast-changing landscape where many traditional products, tools and approaches are no longer relevant as they once were,” Georg Kell, chairman of the Arabesque Group said in a statement on Monday.
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Investment managers are coming under increasing pressure to measure ESG criteria in their portfolios. Consumers are also increasingly sensitive to how companies operate, impacting their buying decisions.
As a result, AI has grown in asset management with companies turning to technology to help mitigate risk, reduce costs, generate better returns and provide a better service for their customers. AI techniques can also help construct personalised portfolios based on more accurate risk and return forecasts.
Arabesque’s AutoCIO, powered by its AI Engine can help sustainable investors process mountains of data that hold essential information for ESG investing. Millions of strategies can be created based on ESG, risk, values and geographical preferences using AI to analyse the performance of 25,000 stocks daily.
“Whilst the market is increasingly demanding sustainable products that align with the objectives and values of investors, asset managers are currently unable to offer customisable, active solutions at scale,” Kell said.
Arabesque’s AutoCIO, powered by its AI Engine is capable of processing billions of data points each day for its stock signal outputs, using the equivalent processing power of tens of thousands of computers.
As new data is inputted, the AI Engine re-learns what is driving stock returns and aims to improve over time, removing human biases and reducing the potential for errors.
Users can define a wide range of sustainability and investment objectives such as climate targets, ESG criteria and risk/return profiles, according to the asset management and ESG data house.
“Asset managers today increasingly need to personalise products and services at scale to focus on customised strategies that incorporate investors’ sustainability objectives and values,” Dr Yasin Rosowsky, chief executive of Arabesque AI said. “We use the power of AI to build systems capable of handling the complexity of financial data and enable scalable investment process design for a wide variety of use cases in an efficient and cost-effective way.”
The process for creating and training AI algorithms requires large amounts of computing power, which in turn consumes large amounts of energy. Arabesque has mitigated this, running AutoCIO on “carbon-neutral” Google Cloud, according to the asset manager.
AutoCIO is already underpinning US$400 million of investment strategies, but Arabesque did not disclose further details on its clients or mandates.
While the industry is increasingly incorporating AI, it has its challenges and will still require human oversight. Technologies that have access to sensitive data require robust cybersecurity measures as data leakage and misuse is a major concern of AI within financial services. Asset managers rely on vast quantities of data, including from external vendors. The integrity of the data must also be monitored.
The industry will undoubtedly shift in this direction, with other major asset managers looking to incorporate AI into their operations.
“Artificial intelligence will play a pivotal role in the customisation of active investing in the coming years, with pressure growing to innovate both in terms of technology and client centricity,” Kell said.