The use of technology has the potential to transform the investment industry bringing down the cost of asset management, exponentially increasing innovation and building more resilient and adaptive portfolios. So investors need to move now to keep pace with the change. Amanda White talks to Herman Bril about why investors need to become ‘technologized investors’.
At the beginning of this year MSCI teamed up with Google to build a cloud-native investment data acquisition and development platform using Google’s AI and natural language processing technologies. The idea is this will allow MSCI to “acquire, ingest and process” structured and unstructured data at scale and more quickly than ever before.
It’s an example of the use of technology by finance firms to revolutionise their operations and result in the ability to be more productive, have broader analysis and build bespoke strategies at lower cost. Ultimately they can serve their clients better, quicker and with more bespoke offerings.
According to Herman Bril who with co-authors Georg Kell and Andreas Rasche, published a new book in December 2022, Sustainability, technology and finance: Rethinking how markets integrate ESG, these tools and data sets are changing the landscape in profound ways and driving down the marginal cost of asset management.
“We can build tools and put technology in place to build bespoke investment strategies in 15 mins. We are getting closer to autonomous asset management which is highly bespoke and can reflect preferences and values for investors. Five or 10 years ago that would be a big job with an army of people, that is changing,” Bril said in an interview with Top1000funds.com.
The book written with a swathe of contributors looks at three broad topics ESG and technology, ESG through technology and ESG as technology.
Becoming a technologized investor
According to Bril the data available to investors today is transformational compared to the finance industry of old.
“The whole technology stack available today allows for insightful analytics,” he says. “Besides the standard ESG rating disclosures you also have access to lots of different alternative data sets. The question is how do you take that into your systems and benefit from that? How do you build insightful information with all this data suddenly available?”
Bril, now head of sustainability and climate innovation at PSP Investments, acknowledges that the data points are not “perfect” but with so many different data points available from different angles due to natural language processing, machine learning and AI “you can allow for a bit of noise in the data”.
“AI is better than humans in identifying connections and trends in a massive amount of data. We were not able to do that back in the days using excel spreadsheets.”
Bril is empathetic with the call to action by Stanford University’s Ashby Monk for investors to become “technologized”.
“Becoming a technologized investor is really to say asset managers and owners need to become more like information technology companies than traditional investment companies and start using different tools,analytics and data sets.”
This means hiring people with completely different skill sets from the traditional finance analyst sitting behind Bloomberg, and instead look for those who can code, data engineers and climate engineers.
“That is driving massive change in the asset management industry and is ongoing. More and more organisations are making big improvements and investing a lot of money to become technologized investor.”
The book has contributions from many technology experts including Ashby Monk and Dane Rook both from Stanford and an insightful chapter by PSP Investments’ CIO Eduard van Gelderen and the fund’s chief technology officer David Ouellet among others.
PSP Investments’ is now collecting and reporting on sustainability information based on a technology-enabled, data-driven approach that spans a bespoke, green taxonomy for climate investing to ESG scores derived from AI. (See How Canada’s PSP Investments is getting to grips with climate data).
Clearly forward looking data is important.
“We want to have a better assessment of where things are going,” he says. “Investing is all about the future so we need more analytics to help build a better cone of future scenarios and probabilities. Using these tools, analytics and data will increase the risk / return profile of your portfolio. The future is unpredictable, but these tools can help you to become a better, more resilient sustainable investor.”
The authors first book, Sustainable Investing: A path to a new horizon, was published in September 2020. (See Finance teaching not fit for purpose).