World’s Largest Fund Manager Is Replacing Its Employees With AI

For BlackRock Inc., the world's largest money management firm, using AI in lieu of human money managers might make stock picking cheaper and more profitable.

World’s Largest Fund Manager

A couple of weeks back, a study conducted in Germany revealed how AI, using deep-learning techniques, was able to lord it over the stock market by earning returns in the range of 500% – 700% in times of financial turmoil, and higher than actual market returns by about 30% during relatively stable times. This information must have given some stock traders a bit of a scare because it virtually showed that their jobs might be one of those that can be displaced by AI too. As it turns out, the apprehension they are feeling has reasonable basis. And the world’s biggest fund manager has just made a giant step towards this direction.

We’re referring to BlackRock Inc. (NYSE:BLK) and their announcement that they would be cutting more than 40 jobs and replacing some of the firm’s human portfolio managers with AI. And it’s all part of their plan to transition to automated solutions through reorganization and more emphasis on algorithm-based investment actions, reports The New York Times.

On the business side, the move seems a sensible one because returns gained don’t always justify the high cost of employing and retaining money managers. As it is, investors have started to doubt whether paying high fees to have their accounts managed is really worth it, especially because investment advisors typically rely on market indicators and trends, something that an AI programmed with sufficient algorithms can do all too well.

In a recent report by research firm Opimas, they said they are expecting financial companies to spend over $1.5 billion on AI-related technologies. By 2021, that spending will increase to $2.8 billion. And by 2025, these firms will realize a significant improvement in their cost-to-income ratio, and it will be at the expense of a reduction in their workforce with computers taking the place of their human workers.

On the personal side, of course it’s a bit disconcerting because there’s clearer indication that AI might indeed be after our jobs. And not just manual or blue collar jobs because that’s actually pretty understandable.

Now that a major finance company has shown that it is confident enough to replace money managers, replacing other jobs that might be performed better by AI which rely solely on data might not be far behind. And that’s what’s truly scary since it implies that any profession that is knowledge and information based may be vulnerable to automation.

While there are still many instances when customers prefer human interaction, it’s not hard to see that technology is slowly changing this aspect too. Think automated ordering, ticket booking, checkout counters, even complaint filing through those chatbots. Although it felt a bit unnatural when all that automation started, it doesn’t feel as unnatural now that we’re getting used to it, right? I mean, let’s be realistic here. Technology has made our lives way easier and way more advanced. Sure, automation sounds a bit scary when it comes to job-elimination, but universal basic income is certainly there as a viable option ; always, if we would be smart enough to adopt it. All it takes is for one country to implement it and eventually everyone else will start following the model. But getting back to the BlackRock Inc story and the case of stock-pickers and stock market traders getting replaced, it’s probably too early to conclude that they’ll be out of jobs soon. But the threat is real. That much we can be certain of.

BlackRock Stock Action

Shares of BlackRock Inc. rose more than one point to $384.37 Friday morning, extending their 2017 rally to more than 15%.

BLK stock has declined 3.10% in the last 4 weeks while advancing 1.16% in the past three months. Over the past 5 trading sessions the name has gained 2.04%.

The $63 billion market cap New York-based investment firm has a median Street price target of $427 with a high target of $464.

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