Fidelity looks to AI as the future of portfolio management and asset selection

18 Jan, 2019 17:55
source: SCMP

Fidelity International is betting big on artificial intelligence as the future of fund management in the belief that the new technology will give asset managers the edge in constructing and managing portfolios, according to a senior executive.

Luc Froehlich, Asian fixed income investment director at Fidelity International, said that his firm was at the forefront of a transformation that would see an enhanced role for machines in running pension funds, actively managed equity funds and other investment products.

Fidelity fund managers are already using natural language processing in asset selection, Froehlich said.

Natural language processing is an area of AI which deals with how to program computers to process and analyse large amounts of data that comes in the form of written and spoken human language. Using machine learning, natural language processing helps uncover insights and relationships in unstructured data.

“We have been using natural language processing to build up the investment universe for our portfolios,” Froehlich said.

Firdelity, the Boston-headquartered investment manager, reportedly spends US$2.5 billion on new technology annually. Froehlich, who was speaking at a panel at this week’s Asian Financial Forum in Hong Kong, declined to comment on the figure.

But he illustrated his point about technology-driven investment by saying that fund managers can use AI to identify companies related to the “Belt and Road Initiative” when picking shares to include in an asset portfolio.

A knowledge graph can also help fund managers sift through tens of thousands of different information sources in a short period of time. Froehlich said that the tool, which is also used by Google to enhance the results of its search engine, is more efficient than the traditional labour-intensive research approach by equity analysts.

The changes come as the fund management industry struggles to adapt to shifting investor demands for more tailored investment solutions, and as cost pressures remain a concern amid the competitive declines in fees charged by fund managers.

Fidelity has AI specialists among its 500 employees in the Chinese city of Dalian, who are helping to roll out new technology across the company’s global offices.

Going forward, Froehlich said, the way investors are exposed to investment products is also likely to change.

“The biggest disruption we expect is coming from techfin, rather than fintech. We see how companies like Facebook, Google and Amazon are coming to the market and serving as the connection with clients,” said Froehlich.

These tech giants can capture information about investors, their consumption patterns and their preferences, he said.

“They [investors] don’t have to talk to banks any more, as they only need to talk with Alexa,” he said, referring to the Amazon virtual assistant.

In addition to AI, blockchain is another area where Fidelity has emerged as an early industry mover.

In October Fidelity announced plans for a cryptocurrency trading and custody services for US institutional investors under Fidelity Digital Asset.