The transformative power of technology in investment management was the topic of the first session of CIO’s Cyber Cashe livestream event on Wednesday.
Industry experts, investors and others discussed specific tools they use and how they impact the investment process.
Panelists included Charlotte Zhang, senior portfolio manager at the Inatai Investment Management Co.; Thomas Shippee, associate director of pension investments at RTX Corp.; Douglas Clare, managing director and head of cyber strategy at ISS Corporate Solutions; and moderator Amy Resnick, executive editor of CIO.
The Cyber Threat Landscape
Clare, whose company is, like CIO, owned by ISS STOXX, discussed the current state of cybersecurity threats.
“The threat landscape is still high, cyber incidents are still growing in frequency and severity, still growing in terms of the general trendline,” Clare said. During the pandemic, the number of cybersecurity incidents spiked, and Clare noted that the levels have returned to the previous pace of cyber incident growth.
Ransomware incidents, Clare noted, are ticking upward and are becoming more successful. According to Clare, 83% of victims of a ransomware event end up paying the ransom, either through their insurance carrier or through a third-party negotiator.
Ransomware attackers “don’t ask for too little, they don’t ask for too much; what they are asking for, they are getting paid,” Clare said. The average insurance claim for these types of incidents is $40 million, he added.
Third-party breach incidents—when an incident occurs at a company’s third-party supply chain partner—comprise one-third of all incidents among Russell 3000 companies, Clare noted.
“I think asset owners are at least as susceptible as anyone, and they are rich targets due to the data that they have,” Clare said. “Financial services companies generally have a lot of data that is valuable. … There are not a lot of financial services firms that can sustain a long-term ransomware attack without giving in and paying up.”
Allocators and Technology Tools
Many low-level, data-entry tasks are absolutely necessary for allocators, Zhang noted.
“These tasks are generally dedicated to your junior resources, and the reality is they require a lot of time and manual labor but offer … very little intellectual stimulation or learning opportunities,” Zhang said.
One common solution is to automate these workflows, such as uploading data rooms and tagging documents, and tasks like taking notes, which can be assisted with artificial intelligence transcriber tools such as Otter.ai. Tasks like generating a weekly pipeline and producing a first-cut investment overview memo can also be streamlined with a number of available AI tools, such as Velvet AI and Vantager.
“If you think about all of those individual workstreams in aggregate, what happens is it frees up hours per week of an analyst or an associate’s time, and they can actually repurpose that to delve a bit deeper into [something], whether it is sourcing, evaluating or monitoring investments, which should increase their productivity [and] then, also, their professional growth exponentially over time,” Zhang said.
While many AI tools are useful for summarizing information, Zhang said Inatai wants to go one step further and is working with Velvet AI and Vantager to perform analysis. One example is the potential to automate the fund’s quantitative due diligence analysis, as well as produce quarterly and annual reports.
Zhang also pointed out AI tools like Tetrix, which can assist in portfolio management: “For your privates portfolio, it helps you forecast distributions and drawdowns based off of historic trend information from your funds, and then it also helps you play around with different scenario forecasting.”
Investing the time to implement these tools has a long-term benefit for team members, Zhang said.
“Over time, for your team, it means you will need to spend less time on process inputs, and then more time will actually be spent on studying deliverables,” Zhang said. “This helps you ask better questions [and] perform more targeted follow-up analysis, which ultimately does derive deeper understanding of the investments and your comprehensive portfolio.”
Startup Service Providers
How can investors make sure their proprietary information stays safe when working with AI tools, many of which are developed by smaller startups?
“When we are dealing with information from our GPs, there are confidentiality standards,” Zhang said. Inatai uses templatized legal language, for example, stating things like, “our data should only be used by us,” which creates an internal walled-off infrastructure of intellectual property.
The risk of working with an AI startup is that customers or partners can be more at risk than when working with an established institution. In its due diligence with AI tool providers, Zhang said Inatai examines the providers’ founders’ familiarity with digital risks and the precautions they have in place to deal with them.
The company also serves as a design partner, working with many AI tool providers on tools specific to Inatai’s needs.
Building Internal Tools
RTX, which manages $45 billion in defined benefit assets and $35 billion in defined contribution assets and is the parent company of aerospace and defense firms Raytheon, Collins Aerospace and Pratt & Whitney, has the resources to develop its own internal tools to assist with the investment management process.
Shippee, also head of data analytics for RTX’s pension, said that a goal of the company is to develop a centralized database to house all of its retirement data in one place.
Analysts at RTX are free to use whatever tools they need for their asset class, but these data are often isolated.
“Over time, everyone says, ‘Hey, we are getting all this data, where is it going?’ It is being stored in different software, shared drives, tucked away in different email folders,” Shippee said. An internal tool would standardize and store this data in a centralized place.
Speakers also discussed how their teams are trained on technology tools, the due diligence process of choosing a tool provider, tools’ effects on performance and more.
Watch the full webinar session on demand here.
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Tags: AI, Amy Resnick, Artificial Intelligence, Charlotte Zhang, CIO, Douglas Clare, Inatai Investment Management Co., ISS STOXX, RTX Corp., Thomas Shippee, webinar