Putting AI at the service of small investors

Is it possible that one day artificial intelligence (AI) and machine learning (ML) applications will allow individuals to get the best possible return on their savings, regardless of the size of their portfolio? ?

The answer is yes, but there is no time to waste, believes Claude Perron, president emeritus of Gestion Cristallin. “Without artificial intelligence to support our management processes, we will quickly be overwhelmed,” he says. Periods of high volatility on the financial markets, such as the one we are currently experiencing, surely remind all savers-investors how vulnerable they are to the complexity of efficient investing.

Artificial intelligence is now part of the decor in most economic sectors, and Quebec plays 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 niche that makes Montreal a world leader. But its major players, such as MILA, IVADO and Scale AI, have a generalist approach where finance, and mainly asset management, has so far occupied little space.

According to a recent CFA Institute survey, only 10% of portfolio managers use artificial intelligence and machine learning in their management processes.

Creation of a laboratory

But that could change. A group whose mission is to provide Montreal with a laboratory (Finance Innovation & Risk Management (FIRM) Labs) where we will develop artificial intelligence tools specifically adapted to asset management was created at the beginning of the year 2021, after two years of preparation.

Claude Perron, who set up the FIAMtl (Alternative Investment Forum of Montreal) a few years ago, and Ruslan Goyenko, associate professor of finance at McGill University’s Desautels faculty of management and visiting professor at the Yale School of Finance, are the instigators of the initiative whose objective is first to create a generic research laboratory whose results can be distributed publicly. Professor Goyenko is the scientific director of FIRM Labs, and he was the architect of the preparation process.

“Allowing everyone access to the best resources to grow their savings is certainly a social issue, but this will only be achievable insofar as there are conditions favoring the deployment of the talent that exists here in this cutting-edge sector”, said Claude Perron.

Successful proof of concept

In May 2021, 12 doctoral or master’s students in computer science, electrical engineering, finance and economics from a group of 80 who had applied were selected to participate in a six-week training program where they were exposed to cutting-edge AI/AA research applications in finance primarily focused on investment and asset management.

A proof of concept was produced in collaboration with the Desjardins portfolio management teams. “We wanted to take this opportunity to see new avenues opened up to improve our management processes, considering that one of the main goals of the project was to make connections between academia and practice,” explains Julien Béland. , Senior Advisor at Desjardins. The work of the FIRM Labs group made it possible to add 50 basis points to their asset allocation benchmark, taking into account the risk constraints that had been specified. “The proof of concept was conclusive,” says Julien Béland.

AI at EVOVEST

No one doubts that the major players in asset management in Montreal, such as the Caisse de depot et placement, PSP, Fiera Capital and Desjardins, which moreover all participated in the FIRM Labs “proof of concept”, apply already the fruits of their own AI/AA research to their management.

Some smaller managers are doing it too, and funds using artificial intelligence tools will eventually be offered to the public. This is the case, among others, of EVOVEST. “We use artificial intelligence because it allows us to identify the best potential investments thanks to its ability to analyze a large amount of financial and macroeconomic information”, explains Carl Dussault, president of the firm which was born in 2017. EVOVEST manages a portfolio of global equities, and artificial intelligence allows 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, 2019, the fund achieved an annualized return of 12.9%, while the return of its benchmark index (the MSCI World Index) was 8.3%. EVOVEST soon plans to create an exchange-traded fund that will replicate its global equity fund.