The previous few years must have been definitely a challenging phase for most of the active managers. The reason behind it is quite simple-their respective failures for not able to meet in pivotal benchmarks being the most common, and the major investors to have backed up their investments in passive funds more likely.
The active managers have now been the task cut off, have off lately started backing up to embracing Machine Learning that has got tremendous analytical and predictive power, and this will in turn recapture their edge and regain the faith of investors. According to a latest Morgan-Stanley poll, 51% of investment clients, a rise of 27% from 2016, accepted that Machine learning was either a core factor or was the central part to the investigation process. However, there are few others who lagged in and found it difficult to get the best out of potential curve of the Machine Learning Data and mould them accordingly as they still rely upon the traditional approach to investing.
The road to discover ML potential and optimum utilization takes a much longer period: –
Smaller and Medium-sized investment companies face this kind of an issue, wherein their access to the relevant talent in Machine Learning arena is quite limited. Thus, this means of setting, projecting and finally initiating a suitable internal team having relevant knowledge of both machine learning and general asset management which is tedious and also a time-consuming process.
At the same interval, it’s even more difficult for finding out a reliable third-party who can incorporate the machine learning, and then it becomes even more tougher for the firms introduced to machine learning to have produced required output and measurable results from third parties.
With the setting up of the internal team, the broader challenge of development of right mix of tools that are in need to complete the implementation process intensifies. Machine Learning is an art, and which requires consistency and rigorous application as otherwise unearthing historical financial data is a difficult task; and also, without the right tools at hand, the team can’t train and test the machine learning to and ultimately suffer when it is put to live.
Process Perfection is the Key to ML’s Success: –
Machine Learning techniques are at a high risk of overfitting, which occurs when the technology learns to over-detect patterns that are present in the training data and they tend to disappear in a ‘live environment’ which is highly attributed to the overall complexity it has and its recognition power pattern.
The only methodology to curb it is with ample support system and strong implementation process wherein the Machine Learning team needs to have a very solid and rigorous approach to overview how data is to be handled and kept safe. It also must effectively monitor the training and as well as the selection of the best utilization from the available predictive models.
For the success of a best implementation process, active communication plays a pivotal role and hence, the ML (Machine Learning) team must be working closely alongside the portfolio managers for framing any issue that the ML process needs to address and get it resolved.
Sustaining Together: –
There must be clear cut parameters and transparency, when the amalgamation of Machine Learning and traditional methods happen for delivering the better results. Thus, this refers to as not just being clear in what the process will be doing in terms of its approach, but as well as what issues are it going to solve during the investment process, like supporting asset selection. In this manner, it will be much easier to overview the benefits that technology brings to any firm.
Asset management firms must as well as leverage their machine learning partnerships for the educational purposes, optimally utilize the methods like workshops to increase the subsequent knowledge within their company and for providing much better transparency on what the machine learning tools are being utilized for. This approach can reduce some of the confusion which may exist within the team about where machine learning fits into their current processes and methods.
Moving Ahead to achieve goals: –
A strong implementation process, however, driven with better communication and a sound understanding of what the company needs the machine learning models to achieve, can mitigate these risks significantly.
Ongoing communication between the machine learning team and rest of the organisation will also be essential, as it can prevent predictive models being underused by the company. In order to achieve these goals, the suitable role of machine learning must clearly be logically defined from the outset, and teams must be suitably educated on how to maximize the potential of this technology. With these steps in place, machine learning can help active managers to evolve and re-gain their competitive edge.