The Rise Of The Machines Cannot Replace The Human Touch In Investment

Institutional investors are no strangers to adopting new technologies into their investment strategies, but the leap forward expected from innovations such as AI will not replace key decisions made by asset managers and private investors.

Don’t expect an AI model that can forecast when the S&P 500 [SPDR S&P 500] will crash, said members of the Embracing AI In Fintech panel at Benzinga’s Fintech Deal Day And Awards on Monday.

Institutional investors such as hedge funds are accustomed to adopting new fintech strategies into their trading models. High-frequency trading algorithms used by several companies pumped high volumes of cash into very small price moves, benefiting from stable market environments seen prior to the financial crisis.

Many who didn’t see the 2008 market crash coming were wiped out as violent stock price moves made HFT strategies worthless. So could the adoption of artificial intelligence in fintech create a similar monster?

“You must be able to rely on the information you receive,” said Jan Szilagyi, co-founder of Toggle AI, which helps asset managers interpret the high volume of data accessible to them from their portfolios.

“As with human instinct, you’re sometimes right, sometimes wrong – and AI won’t be able to answer questions such as when will the market crash.”

So what can we expect from AI as it becomes more entrenched in fintech innovation? Its role will mainly be to gain access to huge amounts of information instantly and to help inform asset managers and private investors before they make investment decisions.

“Business process can be scaled up as investment is divested from just a handful of asset managers to thousands of wealth management advisors and their clients,” said Anshuman Mehta, chief product officer at Tinfin.

Indeed, information extraction will be the biggest benefit as analysts become able to access information in seconds which would normally take hours or days to research thus enabling more timely investment decisions.

The main danger, however, is likely to be overconfidence, said Brandon Marsh founder and CEO Playfair.

“The biggest AI engines currently available are only made by a handful of companies and this could contribute to overcrowding as they all give similar answers to investment questions,” Marsh noted.

AI, therefore, is unlikely to become a monster of the fintech world and, like humans, unable to predict the future. So watch out for anyone claiming who says they can help you get rich quickly by using AI. They’re likely to be just another financial scam.