Cloud-based tools for coping with the peak demands of AI and machine learning are transforming the financial services industry. Elsen founder Zac Sheffer highlights the benefits of embracing the cloud in asset management, including for operational efficiency.
- Cloud architecture is purposefully built to scale up and down with demand to provide the storage and processing power an organization needs.
- Refinitiv’s inaugural survey of financial business leaders and data scientists, published in April, found that 90 percent of firms have already deployed machine learning by one or more departments to manage or analyze content, and 78 percent of respondents said machine learning is a core component of their business strategy.
- Cloud-based analysis tools such as QA Point are an effective, affordable, and secure option for developing new investment strategies out of large amounts of data.
Financial services — especially asset management — is traditionally an ‘asset light’ industry with little or no need for factories, big research and development operations, logistics or other critical infrastructure. Financial firms could keep overheads low and margins high.
But that all started to change as firms began to rely more and more on technology.
At first, investment in technology was a competitive differentiator, but now it’s more of a necessity. There are only two options: adapt to the technology-driven world, or be left behind.
High cost of data centers
As the race to innovate accelerated over the past few decades, it fundamentally changed the balance sheet for companies in financial services.
In an industry that previously used to have very few expensive assets that would be considered critical infrastructure, companies were forced to spend a significant amount on technology — including the high cost of data centers.
The hardware to run data centers, real estate to house them, electricity to power them, people to manage them, and so on, created a sizeable new line item on the budget.
The overall reliance on technology is definitely not slowing down.
For example, usage of artificial intelligence (AI) and machine learning — two technologies that require significant computing power and resources, and helped propel the wave of infrastructure spending — are becoming strategic necessities.
Machine learning deployment
Refinitiv’s inaugural survey of financial business leaders and data scientists, published in April, verified the industry’s growing reliance on artificial intelligence and machine learning.
The research found that adoption is well beyond the experimental phase and being deployed in key areas including financial risk management, pre-trade analytics and portfolio optimization.
The survey found that 90 percent of firms have already deployed machine learning by one or more departments to manage or analyze content, and 78 percent of respondents said machine learning is a core component of their business strategy.
And in no uncertain terms, the report declares that: “AI will be the single greatest enabler of competitive advantage in the financial services sector.”
The cloud in asset management
It’s clear that transformational technology like artificial intelligence and machine learning will only become more ingrained within financial services.
And the explosion in alternative and financial data that firms have to manage — data that will feed AI, machine learning and other initiatives — will continue to grow, too.
In most cases, building the infrastructure to handle these computing demands doesn’t make much financial or operational sense. Instead, relying on the cloud has emerged as a much stronger option that brings balance back to budgets while delivering better operational efficiency.
A key reason is that on-premises data centers can’t compete with the scalability of cloud architectures. When an organization builds its own infrastructure, it has to plan and build for the highest possible demand that will ever be placed on its systems.
Even if that peak load rarely occurs, having applications falter — which causes disruption for end-users and could lead to situations where the business suffers — is simply not acceptable.
Cloud architecture is purposefully built to scale up and down with demand to provide the storage and processing power an organization needs.
This is especially attractive in light of the fact that data and processing demands will grow exponentially in the future. As this happens, firms that rely on cloud computing will be able to easily throttle demand instead of having to re-architect their own systems.
Addressing security concerns
There are reasons some firms have been hesitant when it comes to embracing the cloud, the chief among them are security concerns.
In an environment where data breaches can be weaponized against a company and regulatory penalties for leaked data are extremely steep, many organizations feel more secure when they house and manage their own data themselves.
But in most cases, as long as a company works with a known and trusted cloud service provider, this argument doesn’t hold up.
In fact, the cloud might even be the safest place to be — something that professionals in the financial services industry should understand better than anyone. Why? The same reason people put their money in a bank instead of keeping it under their mattress.
Cloud satisfaction rates
Just like banks are purposefully built to keep criminals out, so too are the architectures managed by trusted cloud service providers. And they continually invest significant resources in security, more than any one company could invest on its own.
Judging by cloud adoption rates in financial services, most of the industry is starting to realize this and place their fears aside.
For example, the portion of IT budgets being committed to cloud services and tools continues to rise. In the past year alone, cloud spend among financial services firms has risen from 34 percent to 41 percent, according to Refinitiv’s Public Cloud Investment Barometer report.
The report also found that 76 percent of firms feel their public cloud projects performed better than expected when it came to delivering an immediate cost reduction, while most other respondents said costs were in line with expectations.
With results like that, there’s almost no question that cloud adoption rates will continue to rise.
QA Point and the search for alpha
Cloud-based tools and applications are an easy way to start realizing the benefits that companies embracing the cloud in asset management are already seeing.
And for companies looking to expand cloud adoption, cloud-based applications can be a simple way to bring the benefits into new areas of an organization.
QA Point Powered by Elsen, a product developed on the Elsen nPlatform through a partnership between Refinitiv and Elsen, is one example of a cloud-based tool that makes it simple for anyone – quants or non-quants – to work with massive amounts of data and develop new investment strategies.
As the search for alpha becomes even more competitive, an easy-to-use and cloud-based analysis tool like QA Point is an effective, affordable and secure option to empower any asset managers looking for an advantage.