In a six-part series, U.S. asset manager T. Rowe Price explores the big questions in asset management and describes a scenario of where the industry is likely to go from here.
In five parts, readers of finews.asia were able to take a journey through time in asset management from the Great Depression of 1929 to the industry today in Switzerland, based on historical documents from the corporate archives of T. Rowe Price.
Many questions reached us, but what will asset management look like in the future, in the coming years? What will have the greatest impact on the industry? We asked the pioneer in Baltimore and published a sixth part of the series.
More Fundamental Than Electricity or Fire
The focus will be on a trend that – similar to sustainability – will have an overarching impact on all fields in the future: Artificial Intelligence (AI). AI technologies are considered groundbreaking in many areas, as they reproduce or even exceed the cognitive performance of humans.
«Artificial intelligence is one of the most important things people are working on. Its importance is more fundamental than electricity or fire,» said Google CEO Sundar Pichai at an event in San Francisco.
Connecting Human and Machine
For Jordan Vinarub (pictured above), head of the Technology Development Center at T. Rowe Price, the key is «Intelligent Augmentation» – or IA for short. «Augmented Intelligence» as a complement to AI broadens the perspective by assuming that human and computer-based cognitive technologies ideally complement each other positively.
«Augmentation» can preferably be translated as enhancement or extension. The inventor of the computer mouse, Douglas Engelbart, first coined this term in 1962 and called for new concepts for the joint solution finding of man and machine.
Crucial For Long-Term Success
For asset managers, these technologies open up new horizons. The business consulting firm PricewaterhouseCoopers devoted its 22nd CEO Survey for international asset management last year to this topic: According to the survey, 90 percent of asset management CEOs believe that «the market will change significantly over the next five years» as a result of artificial intelligence.
Data on customer preferences and needs and the analysis of this data are crucial for the long-term success of their companies. Analyses like these show: A new era in the industry is about to dawn. «Technology will radically change markets and industries,» explains Robert W. Sharps (pictured above), Group Chief Investment Officer at T. Rowe Price.
Building a Technology Accelerator
In Sharp's view, however, the success of a company will be influenced by a number of very important factors that cannot be captured with bare figures and statistics alone. «People will continue to be at the heart of our investment process, not computers and algorithms,» he explains. «This sets us apart from some Wall Street firms that are increasingly relying on computers to make investment decisions.»
While T. Rowe Price also relies on high-tech solutions to better serve his clients and achieve better investment results, he opened the New York Technology Development Center two years ago.
The company sees itself as a technology accelerator and focuses on developing specialized skills in the area of data usage and processing. «The members of our team in New York work closely with our investment division, trying to use the immense new opportunities offered by technology to improve their research and decision-making processes,» Sharps adds.
Forecast: Significant Investment Benefits
In fact, machine learning offers entirely new tools for analysts. Thanks to recent advances in cloud computing and the availability of vast new databases, it is now possible to benefit from machine learning in the investment world.
For example, the dedicated Equity Data Insights team used decades of performance data and millions of data points to develop a model that assigns a theoretical valuation to each stock in the Russell 1000 Index. This allows analysts to estimate how the valuation will react to certain changes in fundamental data, such as an increase in the company's growth rate.
Next Era in Asset Management
Another research team at T. Rowe Price works through a variety of data to get a picture of a company's «key performance indicators». If they succeed in identifying new and previously unknown performance indicators, this could therefore result in a significant investment advantage.
According to the weekly newspaper «The Economist», computer-based funds now account for 35 percent of the U.S. equity market and 60 percent of trading activity there. «We will never pursue this strategy,» says Sharps. He believes that the insights of investment professionals are the only way to generate higher returns than the index, but with Intelligent Augmentation, for the next era in asset management.
