While Silicon Valley has been investing in artificial intelligence over the last decade-plus, AI-driven asset management is just starting to get some love from investors. Over the next ten years, we will see this change as asset management turns increasingly to AI and technology – and the careers of buy-side professionals are going to change dramatically.
Every year, the asset management industry takes in about $1 trillion in revenue. More than half is invested in human capital. We’ll see a stark reduction in this number, mostly because fees have to go down. In an effort to do so, I expect a hundred billion dollars of annual investment going into technology-driven roles like data science, big data technologies, DevOps and computer and information security. I see this happening in the next two-to-three years.
What's good news for these technology skills is very bad for some front office jobs. There have been some dreadful predictions about how AI will impact asset management jobs - an estimated 90,000 jobs could go, with traders and portfolio managers likely to feel the biggest brunt of the cuts. From my perspective, I think we might see virtually all discretionary traders lose their jobs – we’ll need one-tenth of the amount of trader positions that we have now. At the very least, a trading job will look nothing like it does today.
Aside from traders, whose jobs will be in jeopardy? Traditional quant analysts who use stochastic calculus or financial mathematics, hedge fund marketers and relationship-based due-diligence professionals may be in trouble, although the last two are more based on evolving distribution channels than the impact of deep learning.
A typical asset management firm will soon have more machine learning engineers and data scientists than people with experience in financial markets. The world’s largest hedge fund might also be the company with the best AI expertise.
It is not the end of the human portfolio manager role, but the role of a portfolio manager will change. Even though airplanes have autopilot, there is still a need for pilots in the cockpit to monitor that the system is functioning properly and to make the ultimate decisions.
Instead of hiring hundreds of MBA whizz kids and PhD students out of college to make alphas, asset managers are hiring data scientists to support their investment teams. Portfolio managers are using AI to make more accurate alphas using a repeatable process as opposed to relying on the ingenuity of quant researchers.
This is not some prediction for the distant future - this is happening right now, and asset management firms need to make the investment. Those that don't will soon become dinosaurs.
Gaurav Chakravorty is the co-founder and CIO of qplum, an asset management firm that offers deep learning and AI-based trading strategies. Previously, he worked in machine learning-based high-frequency trading, building an algorithmic trading group as a partner and portfolio manager at Tower Research Capital.
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