Investment management is predominantly considered an inherently intricate process as it revolves around a wide range of factors that influence the success and failure of investment decisions. We have recently witnessed a surge in interest in applying Artificial Intelligence in this sector. AI has emerged as a transformative technology which provides unparalleled accuracy and efficiency through its results. It is being used across industries, and the finance industry is no exception to the impact of AI, with it playing a pivotal role in investment decision-making. Let’s delve deeper into the potential of AI in investment management. 

Earlier, investment management was solely dependent on the human ability of decision-making, particularly in data analysis, risk assessment and investment decision-making. With the emergence of advanced technologies like AI, the investment industry has undergone a paradigm shift. 

AI in investment management

Investment management firms are progressively harnessing the power of AI in asset management and buy-side tasks of financial markets. The ML models can identify signals and observe underlying relationships in huge datasets, making them accurate for asset allocation and stock selection. The algorithms can gradually evolve into computer-programmed algorithms with their ability to learn from the data inputs. Hence, they are able to identify and execute trades without any human intervention. 

AI in investment decision-making

AI in investment decision-making can bring you considerable advantages as it helps rapidly analyse the massive amount of data that human analysts can overlook. As the AI algorithms will be able to identify various trends and patterns, they can analyse a wide range of data like social media content, news and articles and financial statements in order to determine the signals and propose predictions on the company’s future performance. It helps investors make profound decisions by reducing risk and optimising investment portfolios. 

Apart from its wide range of benefits, AI can also enhance the implementation of large orders and optimise the order flow by improving efficiency in financial markets. Cutting-edge technologies like AI are transforming the peer-to-peer lending industry, streamlining data processing to ensure efficient creditworthiness in evaluating potential borrowers, optimising underwriting processes and allowing efficient management in lending portfolios. 

Humans and machines are the most powerful combination

The application of AI in finance should be considered a boon rather than a bane. AI can be viewed as a tool that accompanies humans and complements our abilities rather than replaces them. Combining humans and machines can allow AI’s benefits to be understood while maintaining accountability and control over decision-making. Financial institutions are leveraging AI to help their users make smarter investment decisions. Utilising the power of AI, investors will be able to reduce the workload and focus more on essential tasks that need human intervention, like monitoring the market and evaluating the impact of geopolitical events. 

Four ways in which AI can make progress in investment decision-making are:

1. Data analysis: The accurate analysis ability of AI helps financial institutions analyse humungous data, which includes market trends, financial reports, news and articles, etc., which allows them to observe the patterns and trends that humans may find difficult to spot. Also, the ability of AI to make investment decisions based on large data is significant. 
2. Future market trend prediction: using AI in investment management helps to predict the potential future market trends and price fluctuations accurately to a great extent. It aids investors in arriving at more informed decisions on stocks. 
3. Risk assessment: AI assists investors in having a better assessment of risks associated with various investments. AI systems analyse factors like financial data, market volatility and geopolitical risks and suggest to the investors an accurate understanding of the risks they face and also advise them on how to manage them. 
4. Portfolio optimisation: Integrating AI into the decision-making process will help investors to optimise their portfolios by analysing the best investment techniques that can achieve their goals by reducing the risks. It allows investors to achieve outstanding returns as well. 

• https://www.b12.io/resource-center/ai-how-to-guides/how-ai-is-used-in-investment-management.html
• https://economictimes.indiatimes.com/news/how-to/how-ai-can-help-you-make-intelligent-investment-decisions/articleshow/99248102.cms
• Photo by Annie Spratt on Unsplash