While the use of artificial intelligence at investment banks is far from a new phenomenon, it’s always interesting to see where AI finds a sustainable home – to the point that it is actually replacing humans, not just making them nervous with talk of its potential. Fixed income and equity researchers are quickly becoming the latest recipients of AI-driven pink slips.
Investment banks and hedge funds are expanding their relationships with data science companies in an attempt to improve the speed and veracity of their research efforts, particularly in fixed income for developing countries, according to Bloomberg. They have started employing firms like Arkera and Sigmoidal to scan Twitter, news articles and government statements across multiple languages using AI-based algorithms. One such recent example includes Arkera’s mining of hundreds of thousands of comments on Brazilian news articles and government websites to clear up otherwise murky public sentiments over a proposed piece of legislation. Clients who used the research and accompanying analysis got ahead of an 8% spike in Brazilian currency.
Nav Gupta, who co-founded Arkera following stints at Citadel and Bank of America, told Bloomberg that the firm’s algorithms can process as much information as 1,000 human analysts. Needless to say, that’s bad news for research analysts, who have already seen hundreds of jobs disappear due to MiFID II. The new European regulations have forced banks to stop baking research fees into trading costs, resulting in an overwhelming reticence among clients to pay for research as a standalone product.
Interestingly, Arkera co-founder Vinit Sahni believes that algorithms won’t fully replace analysts but will rather enhance the work of human researchers. The problem is that there soon may not be many analysts left other than the big-name ‘figurehead’ analysts leading groups and an army of assistants with minimal experience. MiFID II has already trimmed the herd of expensive research analysts, leaving cheaper juniors to do much of the work. Now, AI is adding yet another reason to cut research budgets without losing much in the way of productivity.
Elsewhere, a compensation consulting firm has put to paper what most bankers have likely assumed for a while now: pay packages are headed south. The biggest losers for 2019 will be equities traders and underwriters, who will see as much as a 15% decrease in compensation, according to Johnson Associates. Fixed income traders and operations staff at investment banks are in line for as much as a 10% pay cut.
The biggest “winner” may be M&A bankers, who are expected to see their compensation remain flat. However, that’s only when taking into account the likelihood of a strong second half. Advisory revenue was generally down during the first six months of the year.
The good news for Point72 traders is that the hedge fund is up around 10% on the year. The bad news is that around one-third of those gains are attributable to outside money manager Melvin Capital Management. (WSJ)
Fresh off announcing the ousting of its chief executive and more than 4,000 planned job cuts, HSBC has appointed the former head of Deutsche Bank’s investing arm as the next CEO of HSBC Global Asset Management. Nicolas Moreau will start next month. (Financial News)
Credit Suisse is attributing much of the turnaround of its global markets business to its increased focus on electronic equity trading along with a revamped managerial team that included the reshuffling of roughly half the managing directors within its equities division. (Trade News)
Goldman Sachs may owe a favor to its affable former Chief Executive Lloyd Blankfein as it prepares to orchestrate WeWork’s initial public offering alongside J.P. Morgan. Blankfein “palled around” with WeWork CEO Adam Neumann during a December charity event, leading Neumann to remark during his speech that he and Blankfein “have been having so much fun” together. (Bloomberg)
Non-customer facing telecommuting employees at Wells Fargo, including many tech workers, will reportedly be consolidated into “centralized hubs.” Those who don’t want to move closer to one of the hubs – along with those who don’t want to leave their own house – may soon find themselves looking for work. (Dealbreaker)
Hedge funder Richard Perry, who shuttered his eponymous firm in 2016 following investment losses and client defections, just saw his “passion project,” luxury department store Barney’s, file for chapter 11 bankruptcy. (WSJ)
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