The Changing Environment Of Investing

“Asset Management is like any gold-rush, the only people making money are those organisations who are selling the pans ” – Eamonn O’Laighin 2017

As during the gold rushes of old, the first to sell the pans will be the first to be the market leader. It seems everywhere you look, read or listen today. There are several prospectors shouting from the mines that the age of active investment is over and that AI or AGI (Artifical General Intelligence) is about to change the investing world. While I agree with the sentiment, I don’t agree with the timing proposed by many a writer. I believe that the crossover will be more gradual and more turbulent than most. The flip side is, whoever sells the most robust pan, will capture significant market share before their competitors.

Huge investments are being made across the financial world with several studies and articles already written ( a few links below)

Financial Times

FinExtra

PWC

The key stumbling blocks currently are:

  • Trust
  1. Humans have an innate fear of all things out of their control. Most errors happen when someone doesn’t trust the system and manually intervenes.
  2. Most investment house would need at least a few years of parallel testing to be able to gain investors trust and prove track record.
  • Cost
  1. Cost of development and testing can be prohibitive to new entrants
  2. By creating an AI fund they may be making sure their slice of the cake gets smaller (Fees)
  3. Reputation risk if they are the first to go wrong or go wrong big.
  • Human Factor
  1. No AI to date has been able to replicate the madness of the crowd/herd. We are as humans irrational and like a Human Genome- complicated, hard to map and even harder to replicate.  Although we are nearly there!
  2. Will human investors invest in non-human management funds?  Irrespective of returns?
  3. How will these funds react to fat tail events seamlessly and timely?
  4. Will humans still determine the risk profile, the horizon and asset class? Therefore induces the element yet again of human error or malice as an unintended consequence.

All above pose wonderful risk and yet great opportunity. It’s happening now whether the public, governments or investment firms like it. Which will you have – the pan or empty worn hands open. Time will tell.

gold-rush-pan

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