Could applications of artificial intelligence (AI) and machine learning (ML) one day allow individuals to get the best possible return on their savings, regardless of the size of their portfolio?
Posted on July 4th
The answer is yes, but there is no time to lose, believes Claude Peron, President Emeritus of Justion Christlin. “Without AI to support our administrative processes, we would quickly feel overwhelmed,” he says. Periods of extreme volatility in financial markets, such as the one we are currently experiencing, certainly reminds all savers-investors of their exposure to the complexity of effective investing.
Artificial intelligence is now part of the decor in most economic sectors, and Quebec is playing a leading role in its development. But not in finance, and certainly not in asset management.
The development of artificial intelligence tools has become a place that makes Montreal a world leader. But its major players, such as MILA, IVADO and Scale AI, have an overall approach where finance, primarily asset management, takes up little space so far.
According to a recent CFA Institute survey, only 10% of portfolio managers use artificial intelligence and machine learning in their management processes.
Create a lab
But this could change. A group with a mission to provide Montreal with a lab (Labs for Financial Innovation and Risk Management (FIRM)) where we will develop specially adapted AI tools for asset management at the beginning of 2021, after two years of preparation.
Claude Perron, who set up the Forum for Alternative Investment in Montreal (FIAMtl) a few years ago, and Ruslan Joenko, associate professor of finance at McGill University’s Desautels School of Management and a visiting professor at Yale School of Finance, are the instigators of an initiative whose first goal is to create a public research laboratory whose findings can be distributed in public. Professor Goenko is the Scientific Director of FIRM Laboratories, and was the engineer of the preparation process.
“Allowing everyone to have access to the best resources to grow their savings is certainly a social issue, but this will only be possible to the extent that there are favorable conditions for deploying the talent that is here in this evolving sector,” said Claude Peron.
Successful proof of concept
In May 2021, 12 PhD or MSc students in Computer Science, Electrical Engineering, Finance and Economics were selected from a pool of 80 students to participate in a six-week training program where they were exposed to the latest AI/AA research. Applications in finance primarily focus on investment and asset management.
Five of them were chosen to demonstrate to the financial sector in Montreal the extent to which AI/AA can help major asset managers make better decisions about their asset allocation.
Ruslan Goenko, Assistant Professor of Finance at Desautels School of Management at McGill University
The proof of concept was produced in collaboration with the Desjardins portfolio management teams. Julien Béland explains. Desjardins Senior Consultant: “We wanted to take this opportunity to see open new ways to improve our management processes, bearing in mind that one of the main objectives of the project was to establish links between academia and practice.” The work of the FIRM Labs group made it possible to add 50 basis points to the asset allocation standard, taking into account the identified risk constraints. “The proof of concept was crucial,” says Julian Byland.
AI at EVOVEST
No one doubts that major players in asset management in Montreal, such as Caisse de depot et placement, PSP, Fiera Capital and Desjardins, who have all been involved in the “proof of concept” for FIRM Labs, are already applying their own fruits of AI/AA research to manage it.
Some junior managers are doing this as well, and money using AI tools will eventually be offered to the public. This is the case, among other things, EVOVEST. “We use artificial intelligence because it allows us to identify the best potential investments thanks to its ability to analyze a great deal of financial and macroeconomic information,” explains Carl Dussault, president of the company that was born in 2017. Global stocks and artificial intelligence allow it to analyze 2,500 companies every week.
EVOVEST’s Global Equity Fund is now three years old, and the results speak for themselves. Between January 31, 2019 and March 31, 2022, the fund generated an annual return of 12.9%, while its benchmark (MSCI Global Index) returned 8.3%. EVOVEST is soon planning to create an exchange-traded fund that will replicate its global equity fund.
An earlier version of this article talked about the performance of the EVOVEST Fund between January 31, 2019 and March 31, 2019, instead of March 31, 2022. We apologize.