Tag Archives: investment management

Event Recap: AI and Machine Learning in Investment Management

· · Leave a comment

Rick Roche, CAIA, of Little Harbor Advisors, entertained a full house as he presented an overview of Artificial Intelligence and Machine Learning in the Investment Management Industry. The audience was diverse, ranging from industry veterans to a Senior in High School (I must admit that I wasn’t as forward-thinking at his age). For Mr. Roche this was a homecoming of sorts, having lived in Linden Hills for 22 years before moving to Boston last year.

Though Artificial Intelligence and Machine Learning is complex and often begs to be gone through with fine detail Rick presented a view that was “a couple feet deep and a mile wide” – for the 43rd time in the last 13 months we were told. The hour ranged from 1) a history lesson of Machine Learning to 2) the fascinating amount of data and capabilities currently available and 3) some thought provoking views of the disruption that may (will?) be caused by the uprising of the machines and those who run them.

Mr. Roche parroted Gary Kasparov in his book “Deep Thinking”, where he reflected upon losing to IBM’s “Deep Blue”, blaming it on “Losing emotional control … and never getting it back” — for those in the investment industry this emotional control may strike close to home. That the Wealth Management industry is a laggard when it comes to the adoption of the advanced techniques (as reported by PricewaterhouseCoopers) is odd as it has two of the key ingredients necessary to foster the revolution, high margins and emotional participants. A quick poll of the audience seemed to support this idea that the industry lags behind as only about a quarter of those present had some exposure to machine learning with most of these having only done some light reading on the topic.

As a CFA charterholder, and someone who is not looking to be displaced by a robot in 10 years, some of the more riveting aspects of the presentation focused on the world around me, including:

  • Algorithms developed through Machine Learning techniques account for more than 98% of the trades happening on Wall Street and have sped up to the rate where 40,000 trades can now execute in the time it takes to blink our eyes.
  • By 2025, 163 Zettabytes of digital data will be available (roughly equivalent to the storage capacity of 635 billion of the top of the line iPhones) — to put this in comparison it is estimated that the totality of human speech in all of history would cover 42 Zettabytes (if digitized as 16 kHz 16-bit audio).
  • Algorithms have been developed to understand how much fuel is being transported based on reviewing satellite images to see how low tankers sit in the water.
  • The keywords of “Data Scientist” are bigger than “Quant Analyst” and “Fundamental Analyst” on Indeed by a factor of three, and growing
  • More than half of the people surveyed would consider becoming a client of Google, Apple, Facebook or Amazon if they were to offer wealth management services — and this number increases if you were to ask Millennials and those with over $20MM net worth.
  • Alibaba has the World’s Largest money market fund

In the words of the legendary investor, Paul Tudor Jones, “No man is better than a machine. And no machine is better than a human with a machine”. In the words of another legendary investor, BlackRock co-founder Robert Kapito, “Apple was not in music industry, Google was not in mobile phones, and Amazon was not in groceries — until they were”. Mr. Roche’s presentation highlighted the risks for those who are not willing or able to transform and inspired those who are willing and able to become, what he called, a Computerized Financial Analyst.

That we came together on Halloween and enjoyed a Thanksgiving feast may be a bit of a foreshadowing that blending two seemingly foreign concepts, humans and computers, can work if you sent apart your preconceptions and embrace it.

For those who were unable to come to the event, and for those who would like to see it a second time, please watch the video through the link below. For those who are interested in the topics of programming, machine learning, artificial intelligence, etc. please send an e-mail to the Society (events@cfamn.org).

View the session video here:
https://penxy.com/widget/?e=xelol

-Tom Crandall, CFA

Articles Referenced:

Asset Management Firms are Laggards in ML Adoption

Asset & Wealth Management Revolution: Embracing Exponential Change

Changing Perceptions Interview with Diana Schutter, CFA – Retired

· · Leave a comment

Tell me a little about yourself.

After graduating from high school, I enrolled in a State college with a plan of studying music and theater. The following year, my education took a different course when I accepted an entry level position in the investment department at a public pension fund. I needed full time employment and this position offered tuition reimbursement for college courses in business and accounting. At the time, I didn’t know anything about investments and was uncertain if this was the right decision, but my boss was very encouraging and told me a business education could be very rewarding. Over the next eight years I attended the evening program at the Carlson School of Management, earning undergraduate and graduate degrees from Carlson School of Management. During that period I was promoted to assistant investment manager and that set the stage for what turned out to be a successful, forty-year career in investment management and investment consulting.

What sparked your interest in the investment industry and CFA Program?

I earned the CFA Charter in 1994. At that time I was the in-house investment manager for a legal publishing company, where I also held positions as Chair of the Investment Advisory Committee and Trustee for the company’s defined benefit plan. I was responsible for how the employee benefit funds and corporate assets were invested. Later, the company was bought out and my job was eliminated. A woman that I knew had just been recruited to develop and lead the investment advisory practice in an accounting firm. She asked if I would join her practice because some of the executives at my former company were interested in having an independent advisor. That’s how my career changed from investment management to investment consulting.

What was your experience with the CFA Charter?

I was previously a member of the of the Twin Cities Society of Financial Analysts and there were no requirements as long as you worked in the industry. Later, new members were required to pass the CFA Level 1 Exam. When I went into consulting and had to build a business, the CFA was very beneficial. At the time our consulting firm was started in the late 90’s, most institutional investors did not know what the CFA Charter was. However, following the tech bust when there was a big fallout in the capital markets, the CFA gained more recognition among institutional investors and became more respected and then again after the 2009 financial crisis. Therefore, in the field of investment consulting, the CFA credential was very beneficial to my career success.

Did you have a mentor or champion who was instrumental in your career?

The person who hired me for my first job. He was very encouraging and showed me that you can’t have a closed mind when thinking about potential career changes. He opened my eyes to numerous opportunities.  In my experience, his encouragement and willingness to hire and promote a female in the mid-1970’s was unusual.

What professional opportunities and challenges have you experienced?

My biggest challenge was that the ethics in this business is on average not good. With 23 years of experience where my role was to invest funds of the employer, I wasn’t trying to sell my services to clients and everything I did, I thought was the very best for my employer. When you are in the advisory business, there are so many things that constrain what you can offer a client for advice. Whether it is technology and resources you have, or that you decided to affiliate with another party, it influences your advice and you may not always be giving the best solution. That was the hardest thing for me. For my new business, I had three partners and we wanted to go into consulting in our own firm so that we wouldn’t be confined to that culture where it wasn’t always in the client’s best interests. Our dedication to that cause hurt us in terms of how much we could grow, but we did well enough.

What is your experience with starting your own business?

Our consulting firm was founded as part of a “spin out” of twelve clients from the accounting firm where my business partner and I worked to develop an investment advisory practice for two years. In 1998 our firm was started with two principals (including myself) and one associate. We invested $60,000 of our own money for working capital. Over the next 14 years our firm grew to 9 employees and 55 clients with aggregate assets of 3 billion.

What is the biggest risk you’ve taken in your career?

The biggest risk was starting my own firm and each year thereafter the potential risks increased as new clients were added, new employees hired and assets under advisement grew larger. As a registered investment advisory firm we were cast in a fiduciary position with respect to investment advice, which increases the costs for insurance protection.

What got you here; how have you been successful in investment management?

As explained earlier, I believe the combination of my work experience with internal funds management and education were contributing factors. The reason my second employer (where I worked for 12 years) hired me was my experience in internal-funds management. Today, most investment consultants who advise institutional investors don’t have that hands-on experience of performing securities analysis or initiating trades. Those work opportunities I think made me a better consultant.

18% of CFA Institute’s members are female, and 14% of CFA Society Minnesota members are female. Do you have any thoughts on why more women aren’t pursuing a career in investment management?

The numbers have changed, it’s surprising that the number entering the field is not proportional to the number rising through the positions and responsibilities. A career in the investment industry is taxing especially if you are a woman with a family and have other obligations. Some companies are trying to change their culture to allow for the flexibility needed for us to be able to succeed. There is also a huge amount of sexism, but CFA Institute and companies are working to improve that.

Do you have any advice for young professionals interested in a career similar to yours?

If you’re looking at positions within the investment management field, some of the larger foundations that have a staff managing their investments is a good place to start because then you are truly investing for the specific objectives of that client and not influenced like you would be if you are investing and representing a management firm. You can start in larger foundations to get a good understanding and background then branch out.

 

Student Interviewer

Lise Arakaza is an international student from Rwanda in her final year at Gustavus Adolphus College. She’s a Financial Economics major and Gender Women Studies minor with hopes of working in banking or an investment advisory firm.

2017 Alpha and Gender Diversity Conference

· · Leave a comment

Two months ago, I attended the third annual CFA Institute conference on gender diversity in investment management. What really stood out to me was how the conference has evolved since the inaugural conference two and a half years ago. The conference was initiated as a result of the Women in Investment Management initiative CFA Institute has embarked on. Many of the sessions at the first conference were focused on the experiences of women in the industry, and how they found success. The second conference was filled with substantive sessions on the research and data available to make the compelling business case for diversity in decision making. Overall, this year’s event was positive, uplifting and intriguing enough to make me think about attending the next conference.

This year, the agenda built on the success of the earlier conferences with valuable sessions on effective strategies for improving gender diversity. Topics included: an update on gender diversity research, how firms can improve their competitive edge with gender diversity and insights from the C-suite regarding career advancement. In addition, Paul Smith, CFA, President and CEO of CFA Institute discussed his expectation that the lessons learned from the initiative to increase gender diversity will be used to improve other types of diversity in our industry.

I honestly cannot tell you which session was the most informative as most were. There were more than a few interesting surprises.

The first session was an update on new gender diversity research.

Heather Brilliant, CFA, Vice Chair of the CFA Institute Board of Governors and Managing Director of First State Investments session was titled “Improving Diversity: What Really Works?” She began with statistics from the CFA Institute Research Foundation:

  • 45% of investors believe gender diversity does not matter for managing investments
  • 66% of women in the industry have most of the dependent care responsibilities

Could these realities be holding women back?

She then discussed why diversity is not the answer. A 2016 Harvard study found mandatory training leads to disengagement and backlash, and biases can be difficult to train around as we are not aware of those biases.

The researchers from Harvard found that engagement, exposure and accountability do work. In practice, college recruiting programs are effective, task forces and rotation programs are effective ways to provide exposure. You can find the Harvard study and several other relevant articles here.

Heather made two recommendations that were surprising to me. First, she recommended a structured process for talent acquisition – no panel interviews (which I used to like because I did not have to answer the same questions several times with equal enthusiasm), keep potential vs. performance in mind for all candidates and employees and that, contrary to what many believe, formal mentoring works. And here is the most surprising comment: she recommended considering quotas because they can increase female leadership which leads to policy influence. Surprisingly, gender quotas do not lead to back lash among citizens. (I did ask her to define what “quota” meant to her and she indicated that targets tend to not have enough accountability, and she stressed you must not consider unqualified candidates). I should note a speaker from another session had the opposite opinion of quotas.

Brad M. Barber, Associate Dean and Professor of Finance as University of California, Davis continued the update on research with an overview of recent studies related to the impact of role models, and math training on young women choosing a career in finance, in other words, the pipeline issue. This might not be surprise to many of you, but I was surprised the research indicates that role models matter.  (I was oblivious to the fact that I did not have a single female math teacher in high school or college). Barber also proposed we develop mentorship programs for women.

I was not surprised to see Dana M. Emery, CFA, CEO of California based investment management firm Dodge & Cox.  Her leadership is no doubt responsible for the culture of the firm. A few weeks after last year’s conference, I had a due diligence meeting with several people from the firm at their office and saw firsthand that this firm has been operating for years (you could not create this culture overnight) with many of the practices that data and research indicate lead to better decisions and a better business. For example, diverse opinions are not only encouraged, they are expected in the decision-making process and team work is the norm. The performance of the funds speaks to the success of the business. (The following is a link to an interesting study “Top Performing Equity Teams: The Common Factors They Share.”

Two comments from a speaker named Colleen Morehead, Chief Client Officer at Osler, Hoskin & Harcourt LLP are worth mentioning. Her session was about purposeful leadership. She encouraged everyone to harness their authentic voice and use it to their advantage. And, she reminded us that biases are merely shortcuts we are built with – they are neither good nor bad. We just need to be aware of them.

The information from this year’s conference supports the direction of CFA Society Minnesota’s initiation, Changing Perceptions. We have evidence our approach to make gender diversity in our industry visible (role models, mentors, speakers) can have an impact, and more ideas for furthering our MN initiative locally.

The next conference will be held September 20-21, 2018 in San Francisco. CFA Society Minnesota’s Past President of the Board of Directors, Leyla Kassem, CFA is on the organizing committee for this event so we can expect another valuable conference.

Teri Richardson, CFA
Changing Perceptions Initiative Chair