This particular use case is on how a US-Based Asset Manager leveraged the power of AI to have a more efficient portfolio optimisation process. The client has roughly $70B of Assets under Management (AuM) and specialises in providing customised investment management solutions to institutional clients. The Asset Manager is committed to delivering tailored investment strategies that align with their clients' unique goals and objectives. They offer a wide range of investment services, including Equity and Fixed Income Management, Alternative Investments, and Private Equity Funds.
Problem #1: Outdated Portfolio Construction Process
The client’s portfolio construction process was not operating at its maximum efficiency. The client had been relying on traditional methods for portfolio construction (e.g. classical mean-variance optimisation), which were time-consuming and not customisable for the client’s respective investment process. Traditional methods resulted in a longer-than-average portfolio construction process and a less efficient optimisation of their portfolios because custom constraints could not be easily integrated. This resulted in the Investment Committee seeing the untapped opportunity of introducing AI in the investment process to reduce frictions.
Problem #2: Incomplete Scenario Analysis
The client’s conventional methods for scenario analysis (e.g. Montecarlo simulations) were not able to keep up with the vast amount of data available in the investment landscape, and as a result, the firm’s analysis was limited in scope and accuracy.
The methods used lacked the sophistication necessary to identify all potential risks and opportunities, which hindered their ability to make informed investment decisions. Additionally, the scenario analyses conducted were labour-intensive and time-consuming, which resulted in delays indecision-making and a potential loss of opportunities.
The client’s investment committee required an advanced scenario analysis that could be enhanced by enlarging the number of scenarios considered (i.e. simulations, what-if scenarios, etc), which could be done by adding an additional, and completely unbiased point of view.
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MDOTM Ltd, with its AI platform Sphere, provided the client with the advanced tools necessary to conduct an efficient AI-driven portfolio construction and advanced scenario analysis.
Solution #1: Frictionless Portfolio Construction
By integrating Sphere into their investment process, the client was able to reshape its portfolio construction. With its user-friendly interface, Sphere allows institutional investors to build their portfolios in minutes and easily interact with them. Additionally, the client could directly integrate their custom views and constraints, and in just a matter of seconds, the portfolio would be optimised accordingly.
By combining AI-driven inputs along with the client’s personalised views, Sphere gave the client the possibility to customise their portfolio construction process, as well as reshape it in order to be more efficient and reliable.
Solution #2: Advanced Scenario Analysis
Sphere – unlike conventional scenario analysis methods – analyses millions of data points, therefore allowing the client to obtain a holistic and unbiased scenario analysis of their portfolio. Sphere’s point of view is purely data-driven, therefore making it a completely objective input that the client could rely on. This enabled the Asset Manager to make more informed investment decisions, ultimately leading to an improved portfolio performance.
Sphere helped the client achieve their full potential and overcome their challenges. Firstly, Sphere's AI-driven portfolio optimisation was a game-changer for the client, as it allowed them to accurately optimise their portfolios in minutes. This feature reduced the time and effort required to enhance portfolios, freeing up the client's team to focus on more value-added tasks. Additionally,Sphere allowed the client to integrate their custom views and constraints, thus making the portfolio construction process completely tailor-made.
Moreover, Sphere allowed the client to have a more sophisticated scenario analysis. It allowed the firm to have an efficient and unbiased market scenario analysis without the use of limited and time-consuming methods. With Sphere, now the client has an additional, and completely unbiased, point of view on which they can rely onto guide their investment decisions. These solutions have enabled the client to have a smoother decision-making process, ultimately leading to significant cost-savings and a more efficient overall investment process.
