Why investment spaces need to embrace the digital age
In an ever digitally-dependent world, data science — the process of using computer systems and algorithms to analyze big data — has become a burgeoning enterprise. Google’s machine learning program “Alpha Zero” has become a force in competitive chess, outperforming both humans and other non-artificial intelligence engines. In the healthcare sector, data analysis has seen increasing implementation, specifically to sort through complex statistics and better inform medical diagnoses.
And in the financial investment space… well, suddenly there is a gap. Unlike many of its industry peers, investment management has been less committed to including digital data tools in its strategies and operations. Why this is the case is both complicated and sometimes misguided. However, incorporating data science in investment science can bring high-level decision-making to a job predicated on exactly that: decision-making.
In the investment management space, even more so than most industries, data is most useful when used to predict future outcomes. After all, investment relies on the ability to forecast success based on prior success, and what better way to assess ongoing trends than through statistical models and algorithms that take care of the brunt work? Unfortunately, certain qualms have kept what possibilities do exist mostly out of practice.
Consider cloud tech, a form of computing where digital data is stored and transmitted via the internet, rather than physical systems. While potentially more efficient for investment firms to work with, cloud tech has been primarily rejected on account of being a hassle to manage and insecure, two aspects that are actually enhanced by cloud logistics. One reason for this may not be fear but rather a lack of digital savvy by primarily financial institutions, a theory suggested in an investment management primer by William Fisher published in 2017. Its authors claim that large, tech-based firms like Google and Facebook are naturally inclined to collect data because it fits their business models. Conversely, asset management enterprises have both by tradition and nature pushed digital practices to the side, generally siding with well-established conventions. The danger? The Googles of the world enter the industry themselves, a strange but real possibility considering how much more efficient their implementation would presumably be.
Of course, it's one thing to forecast the uses of digital approaches in investment management and another to incorporate them in the working industry. However, there are numerous outlets for practical application to explore. Consider dissecting psychology, an area of study whose contrast to applied mathematics would dissuade most investment managers. However, one exciting application of machine learning has been analyzing human emotion, tendency, and rationale. For financial spaces, the ability to understand decision-making is one of the more crucial aspects of success — after all, most outcomes in the space are based on split second judgements, from stock trades to option sales. In other words, in asset management, it proves worthwhile to tap into the minds of clientele, especially since the client-manager relationship is so integral to sustained results.
More STEM-relatedly, some experts see risk management as a particular sector that could especially be bolstered by a data focus. As any good investor knows, real-time developments can always shake up seemingly-stable asset classes, one of the reasons why risk management teams are highly valued at firms. However, automating steps in the process can uncover trends that most humans working by hand may overlook. It’s clear that asset management has a plethora of uses for even the most basic of cloud and data science technology to transform their enterprises.
This isn’t to say that instituting such changes will be easy or even welcomed. Most workers who have been entrenched in the industry will likely be inclined to keep the status quo, and the expenses that will be incurred may be infeasible for up and coming companies. Still, for those who have the assets to do so, a step in this direction is likely one worth taking. For a space that has always been reluctant to adapt digitally, the most important asset under management now is technology, and the unlimited possibilities attached to it.