Why this startup wants to make AI more commonplace in hedge funds
Despite the explosion of artificial intelligence across a number of industries, one area where AI has yet to be fully embraced is with asset management firms.
The data science platform Auquan is looking to change that. Though just 30 percent of investment management firms have adopted the use of AI, according to BCG, Auquan is helping hedge funds by showing them how data science and machine learning can create better opportunities for their portfolios.
The London-based startup promotes the use of quantitative funds, or those that base investment decisions off of computer-driven data, to co-exist with the traditional method of discretionary asset management. Auquan partners with those discretionary firms and takes insights drawn from data to help better guide their investment decisions through the use of predictive models.
Chandini Jain, the CEO and founder of Auquan, spoke at the Neudata Summit in September on how AI helps investment managers find otherwise hidden connections and informational advantages. Ninety percent of the world’s data was created in the last few years, according to IBM, so data scientists can’t be expected to process all of that without help from AI to collect this data at scale.
She notes that asset management firms will be left behind if they don’t jump on board with AI and machine learning techniques for their investments.
“The biggest barrier to adoption isn’t hiring a data science team that can mine insights from datasets for you…The true problem is more deeply embedded in the culture of the discretionary firms. (Portfolio Managers) need to fundamentally buy into the notion that they need to be making investment decisions systematically,” Jain wrote in a blog post.
Data scientists are a scarce breed, and those you can find are usually very expensive. Auquan uses its AI to mine from a network of data scientists to always keep up with the newest solutions that can benefit financial companies. Auquan’s platform also monitors news stories relevant to a client’s portfolio – from major global developments to unseen local stories – and gives contextual analysis for asset managers to better understand market trajectories.
All of this can result in higher revenues and lower overhead costs. Asset management firms have seen up to a 30 percent increase in revenues due to predictive algorithms improving productivity and data-driven client prospecting, according to a 2019 McKinsey report.
This ability to leverage front office capabilities with AI and combine it with a portfolio manager’s existing skills can give hedge funds a reliable arrow in their quiver. The manager can choose to take data insights into account to double down or they have the option to deviate from what the model tells them.
“Zooming in only on front office operations, where Auquan’s expertise lies, AI can add value across the entire investment process,” Jain wrote. “In fact, in terms of raw impact to the bottom line, this is the most important business area that AI could impact.”
Disclosure: This article mentions a client of an Espacio portfolio company.