Enhancing AI Asset Management Tools: Unveiling the Persistent Challenge of Inadequate Data

Building an environmentally friendly investment portfolio can be a challenging task, even for artificial intelligence.

Aether
,
an AI platform for asset managers, was launched by the London-based Arabesque AI in 2019. This platform has been continuously learning and improving for the past four years to analyze and predict the behavior of financial markets. It currently provides performance estimates for over 25,000 companies across different timeframes. “We can generate forecasts for any investible and liquid assets,” said Nikolaos Kaplis, Chief Technology Officer at Arabesque.

Aether retrieves financial data from reliable sources such as Bloomberg or FactSet, including stock prices, volatility, exchange rates, and commodity prices. It also incorporates sustainability metrics from Arabesque’s partner, ESG Book. However, obtaining high-quality data, especially for more unconventional metrics, can be challenging. Kaplis highlighted the difficulty of standardizing data on carbon emissions levels due to variations in calculation methods used by different companies. Precision and caution are crucial in this process.

Asset managers embrace AI for efficient decision-making

Aether provides wealth managers with a condensed summary of the data they require to make informed decisions, automating tedious tasks like news monitoring and data analysis. However, Kaplis emphasized that Aether’s predictions and analyses serve as tools to support asset managers, and the final responsibility to buy or sell assets lies with humans. In addition to its investment advisory and tech services, Arabesque designed Aether to answer questions from financial advisors. As the AI becomes more sophisticated, it will be able to provide insights into its decision-making process and highlight the key data it considered for the forecast.

Arabesque recognizes that younger investors, who will soon inherit significant wealth, often prioritize sustainability, emissions, and diversity when making investment decisions. By 2030, approximately $68 trillion will transfer from baby boomers to millennials according to a report by PwC. Younger investors are also more skeptical of traditional finance markets and seek transparency from financial institutions, as indicated by research firm eMarketer.

The SEC monitors AI-driven investment tools

Arabesque’s Aether is one of many AI tools employed to enhance investment strategies. This category of products has drawn the attention of the US Securities and Exchange Commission (SEC). In a press release issued in July, the SEC proposed new rules to regulate AI-driven investment engines. The rapid adoption of such models raises concerns about potential conflicts of interest and their impact on investors.

Financial advisors’ resistance to change poses another challenge for companies like Arabesque. However, Kaplis believes that as new generations of investors enter the market, there will be a swift and abrupt shift in investment practices. Younger investors have a holistic approach to investments, considering not only returns but also various complex requirements. As this pressure accumulates, the adoption of AI tools like Aether will accelerate.