AI Case Study

BlackRock chooses investment opportunities to add to its portfolio based on AI recommendations

BlackRock is planning to move a significant amount of its actively managed wealth into an equity branch called Systematic Active Equities that uses AI algorithms and models to pick stocks.

Industry

Financial Services

Investment Banking And Investment Services

Project Overview

The Financial Times reports that "SAE now employs 80 portfolio managers and researchers, who include more than 30 PhDs in computer science, physics and engineering. The goal is not to achieve dramatic wins but consistent market-beating results. SAE’s research process borrows from academia. An analyst proposes an investment idea, and is then assigned a “referee” who spends a week trying to demolish the thesis. It then gets presented to an approval board, which decides whether it should be included in investment portfolios and what kind of weighting it should be given. These days, the competitive advantage from such signals can quickly be lost, so SAE often gives a heavy weighting to new signals, and gradually reduces the money allocated as their effectiveness “decays”. A good example is Glassdoor, where employees can anonymously review their companies. Two decades ago investors might have looked at Fortune magazine’s ranking of the happiest workplaces, but today SAE can systematically monitor for signs of a company’s employees getting happier or restive. That analysis has turned out to be a good predictor of stock returns."

"Although BlackRock executives stress that SAE stands on its own two feet, the hope is that resources ploughed into the quant arm will be a catalyst for the entire company. One example is the real-time economic gauges SAE has created for the BlackRock Investment Institute, based on a host of alternative data sets like internet searches, online invoices and even traffic patterns. But the cross-unit pollination will need to be much broader and bigger to be judged successful."

Reported Results

Planned; results not yet available

Technology

In-house proprietary models and algorithms

Function

Operations

General Operations

Background

The Financial Times reports: "In the past, investment companies might supplement their analysis of economic data and corporate balance sheets by sending junior employees to count the number of visitors at a shopping centre, or hiring psychologists to analyse the body language of executives. These days, this can be automated and done instantaneously by using fields of artificial intelligence to pore through vast digital data sets. One of the biggest trends in the money management industry is the explosion of interest in quantitative investing, using high-powered computers and artificial intelligence to scour markets and gargantuan data sets for patterns that can be exploited by trading algorithms."

According to the Financial Times, BlackRock's CEO upended "BlackRock’s underperforming stockpicking business, sacking seven fund managers and shifting billions of dollars they used to manage to a little-known arm of the asset manager’s sprawling $6tn empire based in San Francisco, called Systematic Active Equities. BlackRock hopes that SAE will not only become its own “quant” powerhouse but also help transform its wider business by incubating new techniques and data sources that will be spread across its asset management complex."

Benefits

Data

Data comprised of various data, according to the Financial Times "more than 1,000 signals SAE has accumulated in its library, of which between 100 and 200 are currently being traded. Roughly a fifth of SAE’s models are changed every year, with few signals working for much longer than five years. ... alternative data sets like internet searches, online invoices and even traffic patterns".