PLACE FINANCIÈRE & MARCHÉS — Fonds

Contribution - Alfi

Data science as a driver of competitiveness



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Nasir Zubairi, CEO de la LHoFT. (Photo: Sébastien Goossens / Archives)

With over 4,000 investment funds, 140 banks, 300 insurance companies and over $4.5 trillion of assets under management (AuM), Luxembourg is the world’s second largest investment funds domicile. Sitting on an impressive number of clients, market perspectives, and above all data, the Grand Duchy is facing an amazing opportunity to reimagine its distribution and asset servicing model in order to address market challenges.

According to PwC , we are on the precipice of $30 trillion transfer of wealth from baby boomers to generation X and Millennials. Of this, US$4.1 trillion are anticipated to change hands over the next ten years alone, specifically within the ultra-high net worth (UHNW) segment .

The demographic inheriting this windfall loves technology and embraces change and disruption. Yet at the same time, “wealth management is one of the least tech-literate sectors of financial services”. This is a clear red flag for traditional service providers who must evolve to remain competitive. Data and the use of AI in many forms will be key to winning in the years to come.

Data is everywhere

New technologies and hyperconnectivity provide the opportunity to utilise data for superior decision making in order to drive revenues and minimise costs. Artificial intelligence models, far from the most complex, given that so much of financial services data is structured, can help the asset management industry better understand their investor needs and thus better tailor products for fulfilment.

Data as a key source of competitive advantage

Machine learning algorithms have for quite some time been utilised by hedge funds and other capital market practitioners for execution, yet the method has not caught on in a major way within the broader asset management industry.

Data science, combining AI and big data, can enable an unprecedented efficiency in understanding market dynamics, enhancing execution in portfolio management while significantly reducing costs. ­ Effective use of data and AI should be seen as a key source of competitive advantage for asset managers and as a core component of the growing market in robo-advice that caters for the digital expectations and engagement of the newer generations.

The asset management industry is a bit behind most sectors in finance in its data science sophistication; so, the sector needs now to catch up.
Nasir Zubairi

Nasir Zubairi,  CEO,  LHoFT

AI can help make sense of large scale and unwieldly data to produce descriptive and predictive analytics on investor behaviours, performance measurement, market intelligence, or risk metrics. It is a powerful tool in the arsenal of any firm looking to stay a step ahead of the rest of the field.

Consumer firms have for decades leveraged the power of data to help drive their business; it is somewhat ironic that the financial services industry has historically employed some of the best mathematicians and statisticians the university system has to offer, yet is so far behind in terms of harnessing the power of data to effectively manage its business and to best serve its customers. The asset management industry is a bit behind most sectors in finance in its data science sophistication; so, the sector needs now to catch up.

More news on the fund industry in   Paperjam’s Alfi   supplement.