While some asset managers, such as Korea’s Mirae Asset, have made inroads into utilising artificial intelligence (AI) to manage investments directly, others see AI and other new technologies only as a tool to support, not replace human asset managers in generating alpha.
“Our investment process at the moment relies very heavily on our research group and our quant group producing data that our portfolio mangers and analysts view as value add in their process of investing,” Faulkner told FSA. “This process has served us for a very long period of time. Machine learning and AI signals are additive to that, not disruptive to it.”
Machine learning is a branch of AI that develops applications that can learn from data and make useful predictions with limited human input.
Nevertheless, there are other areas where Faulkner sees AI, and machine learning in particular, as useful for the firm.
T Rowe Price uses machine learning to support its sales and distribution efforts via “micro-segmentation” of clients. “We’ve been spending a lot of time trying to understand our clients through machine learning, to get to the extra level of granularity in understanding the preferences, behaviour and motivations of our existing and potential customers,” Faulkner said.
The purpose of this deep knowledge is to better target the firm’s education and marketing efforts, he added.
While Chinese e-commerce companies and financial institutions have been active in utilising non-standard data, such as online buying habits and content of social media, T Rowe Price has not adopted such a “big data” approach. “We didn’t find it necessary at this point for the type of work we are doing,” Faulkner said.
When asked about the changes in the industry coming in the next five years, Faulkner said he expects the biggest changes to happen in the area of user interaction with institutions. “[Artificial] speech is finally coming of age,” he said, referring to speech-based interaction tools such as Apple’s Siri. “Conversational UI [user interface] will be part of the standard way people interact with organisations like us.”
The pace of change will also pick up to match customers’ expectations and to reflect the pace in other industries such as online retail.
Unlike Natixis, whose efforts to implement a blockchain-based order processing, clearing and settlement platform for its funds are quite advanced, T Rowe Price is not as active in this area. “We are a member of working groups and industry bodies, but it feels to me like real broad applications of blockchain are still some way off,” Faulkner said.
Much of T Rowe Price’s technology efforts have recently gone into migrating its software to native AWS (Amazon Web Services) cloud technology. The new AWS-based systems will gradually replace the firm’s current software supporting a range of business functions.
The main benefit of this migration is the ability to scale the systems according to the company’s needs and size, as it pursues expansion outside the US, in particular in Europe and Asia, Faulkner said.
He said using AWS is also expected to lower the firm’s fixed technology costs, since it will need less stationary equipment and only pay for what it consumes.