Professional Documents
Culture Documents
In
the
investment
world,
robo
advisors
are
gaining
in
popularity
because
they
demonstrate
that
the
value
added
by
most
investment
managers
to
their
clients
is
quasi-inexistent.
Even
of
greater
importance,
they
offer
solutions
at
a
fraction
of
the
cost.
Low
cost
beta
investing
and
simplified
asset
allocation
for
the
masses
are
attracting
large
family
offices,
UNHWI
and
institutional
investors.
But
in
this
field,
again,
we
are
more
talking
about
automation,
fast
processing
of
data
and
rational
investing
rather
than
AI-investing.
Translating
one
investor
profile
into
an
asset
allocation
map
and
investable
products,
mainly
ETFs,
is
no
rocket
science.
Portfolio
optimization
not
even
more.
And
robo
advisors
dont
even
come
close
to
override
investor
behavior
flaws.
While
this
is
the
situation
today
with
Shillers
case
being
valid,
I
argue
that
tomorrows
situation
may
significantly
differ.
That
financial
singularity
is
not
what
some
anticipate
it
to
be.
If
we
agree
that
progresses
in
AI
R&D
will
continue
to
accelerate,
and
accelerate
even
exponentially,
both
in
development
cycles
and
capabilities,
then
we
should
revise
our
very
own
understanding
of
financial
singularity.
Way
beyond
robos
understanding
participants
investment
and
trading
behaviors.
Algorithms
can
easily
identify
behavioral
patterns
when
they
try
to
anticipate
market
movements
driven
by
activities
built
on
irrational
grounds.
We
now
have
access
to
AI
systems
that
can
trade
using
fundamental
analysis,
that
can
include
and
analyze
flows,
analyst
opinions,
irrational
behaviors
and
all
sorts
of
patterns.
Some
systems
can
and
will
self-improve
to
reach
a
first
point
of
non-return,
that
shall
triggers
many
alarms,
increase
market
risks
and
volatility.
By
learning
how
markets
move
and
how
irrational
behaviors
trigger
flows
greater
than
the
fundamental
ones,
machine
investing
will
align
with
human
investors.
To
even
precede
and
trigger
worse
behaviors.
Schillers
point
is
that
in
case
of
a
massive
sell-off,
irrationally-triggered
flows
will
dominate,
increasing
the
downside
even
if
machine
advisors
would
recommend
buying.
Automated
systems
will
be
able
to
anticipate
such
market
movements,
knowing
ahead
of
time
that
human
will
sell.
Machines
will
trigger
the
correction.
Anticipation
and
prediction
will
be
based
on
the
analysis
of
unstructured
data
coming
from
all
sources,
building
predictive
patterns
indicating
that
market
participants
are
on
the
verge
of
selling.
The
most
sophisticated
systems
will
analyze
market
data,
trading
flows,
research,
internet
searches,
social
media,
specialized
sites,
but
also
combine
the
analysis
with
financial
institutions
own
databases
and
systems.
Adding
an
extra
layer
of
information,
such
as
geolocalisation,
ATM
activities,
CCTV,
satellite
images,
machines
will
know
everything
before
market
participants
act.
Human
will
simply
do
what
they
intended
to
do,
but
not
just
by
following
a
trend,
but
by
following
AI
trading
activities.
This
first
phase
will
allow
an
alignment
and
an
overlap
of
AI-induced
flows
and
human
ones.
Algorithms
will
rationally
include
humans
irrational
behaviors
to
improve
their
predictive
power.
Point
of
no
return
Because
then,
trading
flows
generated
by
AI
systems
will
be
big
enough
to
influence
the
markets
and
surpass
human
activity,
not
just
influencing
it.
Schillers
case
is
losing
grip.
And
financial
singularity
is
still
nowhere
near.
But
the
steps
towards
it
are
set.
When
AI
flows
coincide
with
human
trades,
AI-based
systems
will
have
achieved
two
things:
first,
they
will
be
able
to
set
a
fair
price
on
financial
instruments
and
assets,
using
multiple
factors
and
degrees
of
optimization;
second,
they
will
have
learnt
the
keys
to
the
Keynesian
beauty
contest,
mimicking
human
behaviors
and
anticipating
irrational
flows
that
can
and
do
move
markets.
After
this
phase
of
high
volatility,
when
accentuated
and
leveraged
irrational
behaviors
send
markets
to
Heaven
and
Hell,
will
come
a
phase
of
managed
markets.
One
could
eventually
call
the
market
genuinely
efficient.
Robo-advisors,
AI-managed
funds,
rebalancing
tools,
portfolio
management
systems
will
all
apply
these
unprecedented
capabilities
to
not
only
predict
markets
using
deep
understanding
of
human
behavior,
but
will
start
directing
the
market
to
fairer
valuations.
The
golden
age
of
efficient
markets.
A
haven
for
fundamentalists
and
adepts
of
fair
pricing.
No
financial
or
asset
bubbles.
Low
volatility.
No
market
manipulation.
No
surprise.
Boring.
Boring,
because
investors
can
benefit
from
inefficiencies,
some
asset
managers
(in
fact,
very
few
in
a
consistent
manner)
are
even
generating
excess
returns,
alpha
over
market
performance,
when
capturing
opportunities
created
by
market
moves,
price
adjustments
and
mispricing
(read
Sean
Parks
(In)efficient
markets
on
this
topic).
AI-driven
efficient
markets
will
assure
fair
pricing
of
financial
assets.
Equities,
bonds,
currencies.
But
also
real
assets,
private
equity
holdings
or
any
security
that
can
now
be
marketed-to-market
or
evaluated
and
priced
using
advanced
algorithms
that
include
all
rational
and
irrational
models.
When
humans
rely
of
DCF,
multiples
of
EBITDA,
comparable
companies
or
very
subjective
models
to
value
private
holdings
during
funding
rounds,
AI
will
include
all
of
them
as
well
as
new
models,
not
yet
available
or
used
by
us
in
2015.
Models
we
may
not
even
understand
or
be
able
to
approach.
With
efficient
markets
will
also
come
a
full
set
of
predictive
money
management
solutions.
If
rationally-priced
assets
is
now
the
norm
and
humans
cant
influence
the
markets,
portfolio
management
will
become
obsolete.
Asset
allocation
will
be
an
automated
process.
With
AI-
managed
markets
will
also
come
the
end
of
financial
professionals.
Fully
automated
processes
will
replace
traders
and
brokers.
Fund
managers,
with
the
impossibility
of
generating
alpha,
will
disappear,
replaced
by
ETFs
at
first,
then
by
new
forms
of
pooled
investment
vehicles.
Ironically,
the
whole
concept
of
managing
money
thru
investments
will
be
brought
down
to
a
very
simplified
process,
but
a
process
managed
by
over-fitted
black
boxes.
Up
to
a
point
that
it
will
become
a
self-infused
and
always
improving
process,
non-understandable
by
humans.
5%
per
annum
?
Sure.
10%
?
Sure.
Independently
of
risk
profiles.
Risk
will
become
totally
manageable.
Irrelevant
concept.
AI
algorithms
will
be
able
to
automatically
match
needs
with
a
virtual
demand
and
with
capital.
Algorithm
will
automatically
implement
the
right
capital
structure
for
a
company.
The
right
price
for
new
stocks,
the
right
level
of
debt,
the
best
yield.
A
new
issue
will
automatically
be
allocated
to
the
investors
who
should
buy
it.
No
more
road
shows
or
pitchbooks.
No
more
research
and
analysis
because
humans
wont
have
time
to
publish
or
read
them.
Stock
analysts
will
have
a
second
life
as
historians
of
the
markets.
Asset
allocation
will
then
disappear,
with
AI
merging
asset
classes
into
new
concepts.
Capital
markets
will
disappear.
Bankers
will
be
gone.
The
very
concept
of
stock
exchange
(or
any
exchange)
would
become
irrelevant,
with
AI
allocating
resources
to
needs
directly.
Pension
funds
will
be
gone.
From
a
salary,
money
(assuming
this
concept
persists)
will
automatically
be
allocated
to
pooled
solutions
to
manage
future
needs
and
generate
returns.
Even
crypto-currencies
will
be
short-lived.
New
solutions
will
emerge
allowing
humans
to
get
access
to
goods,
according
to
a
conceptualized
financial
health.
Get
the
vehicle
you
need
according
to
what
you
can
afford
and
get
it
financed
the
best
way.
Capitalism
3.0
with
no
capital
Financial
singularity
is
about
the
dematerialization
of
our
banking
system
and
our
capital
markets.
It
is
about
AI
redesigning
existing
processes,
developing
and
implementing
new
ways
of
building
and
managing
wealth,
in
a
less
Keynesian
way.
Capitalism
3.0
with
no
capital.
Financial
singularity
can
happen,
simply
because
at
some
point
AI
will
surpass
the
first
barrier,
identified
by
Schiller
as
a
hard
obstacle
to
allow
this
to
happen.
We,
human,
cant
and
wont
stop
this.
What
we
need
to
do
it
to
develop
an
approach
towards
this.
To
already
design
master
frameworks
for
the
banks
and
the
markets
of
the
future,
like
for
directing
ivy
wines
on
a
wall,
we
should
direct
AI
in
the
development
of
future
technological
solutions.
Think
like
AI
systems.
Become
AI.
Crypto-currencies,
blockchains,
robo-advisors,
they
are
just
small
bricks
in
a
great
wall
that
is
being
built.
Banks
and
market
participants
must
understand
this
and
have
to
invent
the
models
of
tomorrow
or
at
least
anticipate
them.
Learn
and
master
them.
They
have
to
become
proactive
and
far
less
reactive,
and
focus
on
the
bigger
picture,
2025+,
not
on
the
themes
of
yesterday
or
today.
Quite
a
challenge.
\\---
August
2015
Richard
Joye
is
founding
partner
at
KCHK,
a
financial
advisory
boutique
headquartered
in
Hong
Kong
with
global
network.
Richard
and
team
focus
on
disruptive
technologies.