Turning a data overload into an information advantage

The world generates 60 billion gigabytes of data every day, half of which is unstructured business data in the form of reports and filings. While potentially of huge value to investors all around the world, this volume of data is beyond human comprehension. More problematically, it is even further beyond any human processing or analysis ability, which creates a dilemma for those wanting to actively use it.

Or does it? Maybe this amount of data was an issue in the even recent past, but technology has become the means to resolve it. The rapid development of artificial intelligence has given every sector the tools to slice, dice and readily use data – and the asset management sector is no different. The World Economic Forum found 70% of asset managers believe AI will contribute highly to five-year investment returns*.

For Maria Lozovik, CEO and portfolio manager at boutique investment manager Marsham, AI is already a time and cost saver. “The asset management industry is dynamic and to be competitive you have to be able to see the core of the information and act on it quickly,” she says. “The analysis that gives you an edge is a human one, but the way you source information should be more efficient.”

Marsham conducts in-depth proprietary credit research that enables its managers to select undervalued and higher-yielding opportunities, while managing volatility and anticipating headwinds. For Maria, AI is the only way to solve the conundrum of the world’s increasing volume of unstructured information. Simple algorithms are simply not up to the job.

The manager employs AI both in fundamental research and ESG analysis as a tool to optimise and enhance internal research process.  Nowhere is this data issue more apparent than in the arena of sustainability. Thanks to the explosion in demands from regulators, the ESG research that investors can conduct on companies and corporations has never been more deep or broad. Indeed, law firm Norton Rose Fulbright identified 28 different narrative reporting initiatives* across multiple ESG categories that companies need to fulfil.

One of the fundamental principles of Marsham’s investment approach is that companies that put ESG at the forefront will be the ultimate outperformers. ESG analysis at Marsham is not merely a box ticking exercise, but part of fundamental investment decision making.

‘When we analyse a company from a fundamental perspective, we want to know in detail what ESG impact this company is producing,” says Lozovik. “That means we need to get to the bottom of every report, transcript and statement it had produced on any ESG-related topic and understand its strategy.” Rather than just relying on a third-party rating, which merely takes a snapshot in time, Marsham wants to know the reason for a company decision, its direction of travel and forecast.

But leafing through potentially thousands of pages of documents, reports and filings is tedious and lengthy – and ripe for human error and disruption. Additionally, according to McKinsey*, there are serious shortcoming in ESG disclosures by companies. Disclosures are inconsistent, they can’t easily be compared to each other, and there is no alignment in standards globally. “AI can analyse the information in seconds and give you exactly the bits you care most about for you to make the judgement,” she says. “Additionally, AI does not limit the universe of companies under review. It literally can give you immediate information on any listed company – unlike any research house.”

Applying AI to ESG can create order from this chaotic mass of qualitative and quantitative information. It understands the complexity of the language used in a wide range of reports, and presents the findings in a digestible and useable format.

To achieve this for its own investment analysis, Marsham has partnered with SEVVA, which has created an AI engine to specialise in ESG, sourcing and processing information flows.  If Maria’s interest in AI originated from pursuit of efficiency, it has resulted in investment performance and a partnership that continues to evolve and demand others in the industry keep pace. “We see a dual role for ESG in AI,” says Emma Vartolomei, CEO of All Street, the company behind SEVVA. Firstly, AI can help dedicated teams to do their own bespoke analysis. “You may have an ESG questionnaire that you need to complete for the stocks in your portfolio,” says Vartolomei. “AI can save you hundreds of hours by instantly reading all the company disclosures and pointing you to the location where you can find the answer. “Analysts can add much more value if they can spend their time thinking rather than doing mechanical tasks.” Second is a very pertinent point, given the recent push into private and unlisted company investments by institutional and private wealth investors. “The ratings industry really needs to evolve if we are going to make a difference to planet and society,” says Vartolomei. “There are 60,000 global listed companies and millions of private companies, many of which are operating sustainably but nobody is reporting on them.” Today, most rating agencies only cover around 10,000 companies, amounting to barely 20% of the listed capital markets. “With AI you can automate the ratings process completely, and rate millions of companies at the click of a button,” says Vartolomei. With sustainability and private assets only rising up investors’ agendas, AI might be the tool we all need to streamline our data and processes and refocus on investment objectives.

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Disclaimer: This information is provided for information purposes and directed at professional clients only. It should not be considered as an investment advice or a recommendation to buy or sell any securities. Please refer to Funds’ Prospectus for additional information. Past performance is not a guarantee of future returns. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. The communication has been prepared by Marsham Investment Management LLP (“Marsham”), a firm registered in England and Wales as a Limited Liability Partnership No OC407363. Marsham is authorised and regulated in the UK by the Financial Conduct Authority (the “FCA”), Firm Reference Number 752601.