‘All human knowledge takes the form of interpretation’ – Walter Benjamin
A wise person once told me that a good way of showing true knowledge and understanding is explaining something in straightforward and easy to understand language. Last week I had the opportunity to talk with a number of young adults at a careers convention their educational facility was hosting about the world of finance and investment. Akin to the comments I heard from a number of the other speakers after the event, the range and depth of many of the questions was very humbling. One question for me particularly stood out: ‘will artificial intelligence make investment analysts and fund managers redundant?’
There is little doubt that the rise of passive index-tracking quantitative investment techniques, ‘robo advisers’ and computer driven asset allocation optimisers are changing the investment industry. Technology waits for no-one and in the investment world the range of data, information and quantitative analytical power that this £200 computer I am tapping up these thoughts on dwarfs the expensive systems that all fund management industry professionals desired when I started in the industry – and which would collectively cost around the same as a fund manager’s salary to install and get datafeeds for.
The ongoing information revolution has very exciting applications in most sectors but collectively for the fund management and related industries it causes a high level problem of too much cheap data. Today if I want live share prices, a link to the latest news from a corporate name, historical base information about a particular issue or matter, a few clicks on a computer keyboard and the internet delivers a sackful of information. The problem – as i mentioned in my answer at the careers convention – is that in a world of too much information we perceive machines can help us too much.
There is no doubt a machine can highlight for me more quickly than I could ever do how many times a Central Bank official mumbled the word ‘inflation’ or in a conference call transcript where a company CEO discussed cash flow. Machines can rank, optimise and filter data way quicker than a human can. And judging by the relative performance of (often) quantiative computer programme run passive funds compared to the typically human managed active peers over the last five or eight years, it is just a question of time before they manage the majority of investment funds too.
Actually the last part of the above paragraph is a step too far. A world of Central Bank balance sheet expansion, ultra low interest rates and cheap money cascading in all directions has been well suited to the rise of the investment machines. However the next five or eight years are unlikely to be the same. Central Bank policies – started with the Federal Reserve – are changing, bond yields are already edging higher and government-led policy initiatives on tax, the labour market and entrepreneurship will become more important. In a more shape-shifting world interpretation of information rather than staying committed to one all-pervading influential theme becomes the key. And in an investment industry setting this suits inquisitive analysts and fund managers…even before you start discussing whether underlying clients prefer to speak to a fellow human or take the advice of a machine.
The internet, mobile phones, £200 laptops and the like are hugely knowledge boosting and helpful but in a mixed up world interpretation of this flood of information becomes the most important trait. And judging by the amount of time most young adults spend fiddling around on their phone multi-tasking they are training themselves quite nicely to become very decent future analysts and fund managers in the changing world of the next generation or two. In the meantime the baton still rests with us older and experienced – and still highly inquisitive – investment industry participants.