Nomura sees better returns with artificial intelligence application in portfolio

KUALA LUMPUR: Japan-based asset management firm Nomura Asset Management Co Ltd expects substantially better returns from its artificial intelligence (AI) fund that was launched in Japan last month.

“We’ve done our work and basically, the performance has been enhanced significantly,” said Nomura Asset Management Malaysia Sdn Bhd (NAMM) managing director and CEO Nor Rejina Abdul Rahim.

She said in Nomura’s strategy, the AI enables portfolio managers to notice patterns and recommend hedging requirements, giving them the ability to maneuver within the market a lot better.

Nomura Asset Management senior investment officer Tsuyoshi Ogawa said his strategy uses unstructured data such as news, employee sentiments and market perception on top of financial data. He said his AI model can analyse and remember up to 80 years’ worth of data.

In terms of the AI fund, Ogawa said both the portfolio manager and the AI are involved in the investment decision. The portfolio manager decides what type of data to use and checks the portfolio after it has been generated by the AI.

“Ogawa’s strategy is taking a very holistic perspective. You have the financials, the employee side of it as well as market perception. It is a very 360 degree type of information that we are looking at rather than just looking at it purely on numbers,” Rejina told reporters at Nomura’s Breakfast Conference 2018 today.

She said Nomura’s strategy includes machine learning before it analyses data. The machine then is able to identify the patterns and help in terms of predictability.
The AI is able to translate both quantitative and qualitative data into performance.

On whether AI would take over the role of investment managers, she said AI’s role is to help managers improve their performance and that human intervention is still needed but the industry may see changes in terms of recruitment.

“From an investment management perspective, we should be looking at graduates with different skills like computer science, people who can understand data, data scientists, that sort of background rather than just your normal investment finance related degree holders. So re-skilling will be very important,” she added.

On how AI would affect the market, Rejina said it would depend on the algorithm and type of data used by fund managers, who will have different investment processes. She said using AI would also allow fund managers to have a better grasp of how volatility can impact future performance.

“It all goes back to knowledge investments. All fund managers say their knowledge is good enough to outperform the market. We are good as humans, but now we are enhancing technology to do even better,” she said.