GARP Risk Podcast
AI on the Buy Side: Risks, Challenges and Opportunities
Jul 25, 2024
Nirav Shah, a founding partner at Versor Investments, joins GARP editorial director Robert Sales to dive into the fascinating intersection of AI and finance. They discuss how AI is reshaping risk management and portfolio optimization in asset management. Shah highlights challenges like bias and data governance, stressing the need for robust regulations. The duo explores the transformative potential of generative AI and predicts significant advancements in investment strategies, drawing parallels to the revolutionary impact of the iPhone on technology.
27:46
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Quick takeaways
- AI and machine learning have become essential in financial services, enhancing risk management and portfolio optimization for buy-side institutions.
- Despite their benefits, AI and ML face challenges like overfitting and data subjectivity, necessitating robust data governance and human oversight.
Deep dives
Applications of AI in Financial Services
Artificial intelligence (AI) and machine learning (ML) have become integral to financial services, with asset management firms utilizing these technologies for various applications. For instance, AI is employed in merger arbitrage strategies, where firms build comprehensive databases of historical mergers to estimate probabilities of deal success and size portfolios accordingly. In addition to risk management, ML models assist in portfolio optimization by identifying hidden alpha through the analysis of complex, nonlinear relationships in data sets. This capability allows firms to dynamically adjust allocations based on market conditions, particularly during sensitive periods like earnings seasons.
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