Using AI to disrupt Investment

Using AI to disrupt the investment sector 

AI and Technology
Published On
November 15, 2021

Combined AI and finance expertise yields profits 

One of Canada’s largest and most diversified investment fund managers has moved into the next frontier for investment management firms – artificial intelligence.

AIMCo, which currently has more than $150 billion in assets under management, has expanded their business model through a joint venture with an Edmonton region tech and artificial intelligence firm, AltaML. The two companies have joined forces to create AlphaLayer, which combines AIMCo’s deep expertise in investment management with the world-class AI/ML talent at AltaML.

The relationship between the two organizations began in 2018 when AIMCo approached AltaML with a problem related to inefficient business operations that they hoped could be solved using AI. Like all investment firms, AIMCo was dealing with a large volume of capital calls and distribution notes that were coming into the company through email. Investment managers were having to sift through the plethora of information, dealing with each request individually, and make decisions about whether or not to approve each one. This was a time-consuming process that took away from the managers’ abilities to focus on areas that provide a far bigger impact for the organization.

“We saw that AI was a really useful tool that could both augment and accelerate the way investment management works.”

The project led to the creation of Milton, a machine learning tool named after Nobel Laureate economist, Milton Friedman. Milton can scan emails, pick out the relevant information needed to make a decision and then make a recommendation on what the next steps should be. An AIMCo team member can then do a quick review before signing off. The economics of this Milton: a task that routinely took 20-25 minutes is reduced to under a minute. Now multiply this process by hundreds or thousands of tasks. Milton applies analytics and rigour to save AIMCo time and increase profit.

The project was such a success that AIMCo decided it was time to go all in with their exploration of AI adoption.

“Milton provided the proof of concept we needed to move full speed ahead with this aspect of our innovation strategy,” said Elias Tsiouris, Director, Capital Markets Operations and Operational Efficiency at AIMCo. “We saw that AI was a really useful tool that could both augment and accelerate the way investment management works.”

It was at this time that AIMCo decided to cement the partnership with AltaML and the joint venture, AlphaLayer was formed.

“AlphaLayer exists because of the vision of AIMCo,” say Chad Langager, Managing Director of AlphaLayer. “The team at AIMCo has a vision of innovation and leadership in the investment management space – and that vision is paying off.”

“AI is absolutely going to be a competitive advantage for firms going forward.”

AlphaLayer has now grown to a team of about 20 people dedicated to finding new ways to apply AI and ML to the broader investment management sector and increase their product offerings. They’ve continued to build tools for AIMCo that speed up the investment process, provide investment and risk insights, and reduce the amount of time spent on low-value work. Issues that any number of investment management firms are seeking to address. And they’ve developed technologies with the goal of helping investment managers make faster, smarter, and more profitable decisions that optimize returns for their clients.

“What’s really exciting is that we now have about 13-14 projects that are undergoing a live user evaluation. These aren’t just theoretical experiments – they’re being used in the market right now,” said Chad. “In fact, one trading model we developed with AIMCo’s investment professionals, and that AIMCo is now using, has shown strong performance to date – translating into a new source of investment returns.”

This real-world application is key. One of the obstacles firms often face when exploring AI, is understanding how theoretical knowledge can be applied to a commercial setting.

Applying AI to a sector that is traditionally very data-driven may seem like a no-brainer, but the reality is that investment firms have been slow to adopt these tools en masse. A common misconception is that AI will take over decision-making, a level of delegation most investment managers are (rightfully) unfomfortable with. But this isn’t the case, it’s not about taking over but rather, helping mangers make faster, more informed decisions by processing large amounts of data and translating that data into complex analysis.

Access to talented data scientists that understand how to build tools that actually work is the game changer. AIMCo was lucky enough to find this level of talent right within their own backyard – both AIMCo and AltaML are headquartered in the Edmonton region, as is AlphaLayer. By leveraging this advantage and embracing the technology, AIMCo is proving to be a visionary leader in this sector and other firms are starting to take notice. AlphaLayer has been working with a hedge fund company in New York for the last year and a half. Together, they’ve built a model that can outperform the index by more than two times. Not surprisingly, Chad isn’t able to talk about the details of this partnership.

“AI is absolutely going to be a competitive advantage for firms going forward,” said Chad. “Our clients aren’t typically willing to talk publicly about our partnerships. What’s helped us generate interest in our company is the level of talent we have – that’s really what sets us apart.”

It’s no wonder then that AlphaLayer plans to remain headquartered in the Edmonton region.

“The talent we can access out of the University here is world-class,” says Chad. “The University of Alberta is ranked 3rd globally for AI research. We’ve expanded our team and have added a branch office in Toronto, but we plan to remain headquartered and grow in the Edmonton region. I think we have the potential to build on what already exists here. There’s opportunity to build a fintech cluster that rivals what is happening in other major centres. This cluster has become a competitive differentiator, helping AlphaLayer attract leading talent from both the finance and AI sectors. Companies like AIMCo, that are committed to innovating and acting as leaders in their industry, are reaping the benefits.”

Chad and the team at AlphaLayer are on to something. Edmonton has more headquartered Schedule I and credit unions than any city in Canada other than Toronto and a strong and growing fintech cluster – CBRE recently named Edmonton the fastest growing tech hub in North America. Combine, world-class talent in AI and ML, a fast-growing tech sector, and a large base of financial institutions, it’s the perfect inputs to drive innovation and deliver value. We’re excited to watch AlphaLayer do just that.