# Why AI can be the key to success for fund managers in the post-COVID landscape
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2020-10-29
Category: TECHNOLOGY
Category URL: https://financedigest.com/category/technology
Meta Title: Adapting Risk Management Strategies During Volatility
Meta Description: Discover how Axyon AI navigates the challenges of market volatility with advanced analytics and AI-powered technology to stay ahead of the game in the new
URL: https://financedigest.com/why-ai-can-be-the-key-to-success-for-fund-managers-in-the-post-covid-landscapehtml

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_By **Francesca Campanelli,** Chief Commercial Officer at [Axyon AI](https://axyon.ai/)_

Volatility in the markets caused by the COVID-19 pandemic continues to present fund managers with significant operational and performance-related challenges. Returns have been below expectations for most, while traditional quantitative models have largely failed to understand the new world and the new underlying rules. To improve the generation of alpha, fund managers will need to rapidly change their approach to how they manage risk and predict future market conditions.

Without effective information, processed at the speed at which markets are moving, [investment managers](https://www.financedigest.com/mg-appoints-former-head-of-axa-investment-managers-andrea-rossi-as-new-ceo.html "M&G appoints former head of AXA Investment Managers Andrea Rossi as new CEO") could be operating ineffectively.

**Out of sync**

The quality of data and how it is used is absolutely crucial for [managers today](https://www.financedigest.com/fine-tuning-your-money-management-skills-today.html "Fine-tuning your money management skills today").

In fact, a [recent report](https://www.financedigest.com/most-recent-development-report-on-centrifugal-chiller-market-to-witness-exponential-rise-in-revenue-share-during-the-forecast-period-2021-2031.html "Most Recent Development Report On Centrifugal Chiller Market To Witness Exponential Rise In Revenue Share During The Forecast Period (2021-2031)") from Deloitte, which examined various financial analyst reports published between 1st January and 6th March, found that just a small percentage mentioned COVID-19. Of those [reports that did reference the virus](https://www.financedigest.com/future-market-insightss-detailed-report-on-cat-litter-market-offers-projections-of-potential-impact-of-corona-virus-outbreak.html "Future Market Insights’s Detailed Report on Cat Litter Market Offers Projections of Potential Impact of Corona Virus Outbreak"), 28% were negative, 52% were positive and 20% were neutral. Clearly analysts did not [see the outbreak as acting as a bearish trigger for large-cap value](https://www.financedigest.com/delivery-hero-sees-higher-gross-merchandise-value-in-third-quarter.html "Delivery Hero sees higher gross merchandise value in third quarter") stocks. [\[1\]](#_ftn1)

Yet, during February news stories revealed that many businesses were facing a direct impact from the virus, and business metric [data revealed a rapid decline in consumer activity](https://www.financedigest.com/oil-slips-on-china-covid-curbs-weak-factory-activity-data.html "Oil slips on China COVID curbs, weak factory activity data"). The application of advanced analytics to these data sets may have provided more real-time insight into the [risks associated with Covid-19 for the stock market](https://www.financedigest.com/frothy-stock-market-valuations-a-dash-for-cash-and-digital-money-all-on-bank-of-englands-risk-radar.html "Frothy stock market valuations, a dash for cash and digital money – all on Bank of England’s risk radar").

However, these new, more-timely inputs require investment decision makers to adapt too and, in many cases, it needed to be processed with new analytical techniques, including AI-powered technology.

COVID-19 has also completely changed the investment landscape. The crisis has almost certainly sped up the speed of change within the sector, but it has also shifted the markets in an unpredictable direction. In other words, the financial [markets can and are reacting in an anomalous way](https://www.financedigest.com/increasing-awareness-of-infant-health-is-paving-way-for-baby-sleeping-bags-market-sales.html "Increasing Awareness Of Infant Health Is Paving Way For Baby Sleeping Bags Market Sales").

For example, in February 2020 at the start of the pandemic, Axyon AI’s anomaly [detection system signalled the oil market](https://www.financedigest.com/the-fall-detection-system-market-to-show-innovation-based-steadiness.html "The Fall Detection System Market to show innovation-based steadiness") had reached an unprecedented level of 100% anomaly. By March, [oil prices](https://www.financedigest.com/oil-prices-edge-down-recession-fears-back-in-focus.html "Oil prices edge down, recession fears back in focus") had fallen to a 17-year low, with prices recording the biggest daily loss since the end of the Gulf War in 1991. Just a few weeks later, the same warning of anomalous data appeared on our [system regarding a large number of markets when COVID-19](https://www.financedigest.com/covid-19-impact-on-attitude-and-heading-reference-systems-market-volume-analysis-future-prediction-industry-overview-and-forecast-2028.html "Covid-19 Impact On Attitude and Heading Reference Systems Market | Volume, Analysis, Future Prediction, Industry Overview And Forecast 2028") was spreading. In these situations, fund managers had to react immediately to [manage the risk](https://www.financedigest.com/early-detection-of-mismatched-trades-is-key-to-managing-risk-and-maximizing-profits-on-the-pl-desk.html "EARLY DETECTION OF MISMATCHED TRADES IS KEY TO MANAGING RISK AND MAXIMIZING PROFITS ON THE P&L DESK") and make sure investments were protected.

![Francesca Campanelli](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/francesca-campanelli-450x629-1736838757017-compressed.jpg)

Francesca Campanelli

However, fund managers were held back by traditional [risk](https://www.financedigest.com/extended-reality-applications-in-risk-management.html "Extended Reality Applications in Risk Management") management models that weren’t set up to deal with black-swan events such as the pandemic. These models are built around strong assumptions on the behaviour of underlying assets, measuring normal distribution patterns on linear scales. While this means they’re effective during times of relative stability, they cannot cope with the flood of chaotic data into their systems caused by [record levels](https://www.financedigest.com/global-covid-19-cases-hit-250-million-eastern-europe-infections-at-record-levels.html "Global COVID-19 cases hit 250 million, eastern Europe infections at record levels") of volatility. This made it extremely difficult for fund managers to gain an accurate view of predicted [market changes](https://www.financedigest.com/sterling-little-changed-after-mixed-labour-market-data.html "Sterling little changed after mixed labour market data").

Now, a second wave of coronavirus is [emerging in economies](https://www.financedigest.com/industrial-automation-incentives-by-governments-in-emerging-economies-drive-industrial-robots-market-fmi-study.html "Industrial Automation Incentives by Governments in Emerging Economies Drive Industrial Robots Market: FMI Study") across the globe. Yet, many fund managers are still continuing to use outdated models that leave them vulnerable to another [market fall](https://www.financedigest.com/bitcoin-falls-to-22-month-low-as-stock-markets-tumble.html "Bitcoin falls to 22-month low as stock markets tumble").

**Preparing for the future**

While nobody can predict the unpredictable, [advanced AI models can detect anomalies ahead of time and be a powerful way of anticipating future events in the markets](https://www.financedigest.com/prefabricated-building-system-markets-advanced-research-growth-opportunities-in-global-industry-by-2025-edited-by-leading-research-firm.html "Prefabricated Building System Market’s advanced Research & Growth Opportunities in Global Industry by 2025 Edited by Leading Research Firm") which are considered unprecedented, such as the COVID-19 pandemic.

Unlike traditional risk models, this [type of AI system is completely agnostic about markets](https://www.financedigest.com/energy-management-system-market-2021-by-global-key-players-types-applications-countries-industry-size-and-forecast-to-2025.html "Energy Management System Market 2021 by Global Key Players, Types, Applications, Countries, Industry Size and Forecast to 2025") and any associated risks, meaning it can be trained just to detect anomalies in the data. However, AI is trained to raise the alarm when the structure in the data is anomalous, which might be a sign of an upcoming unpredictable event.

AI models are also flexible when it comes to reading the reality of the situation at hand, and  without any pre-ordered rules. These [systems are able](https://www.financedigest.com/emerging-risks-is-our-insurance-system-able-to-cope.html "Emerging risks: is our Insurance system able to cope?") to change depending on real data, being able to exploit huge volumes of data and computing power.

In particular, deep learning is a leading-edge technology in [artificial intelligence](https://www.financedigest.com/types-of-artificial-intelligence.html "artificial intelligence") that could benefit fund managers the most. Deep learning can allow fund managers to capture more complex, non-linear patterns in asset behaviour, unlock expanded uses of [alternative data](https://www.financedigest.com/the-quest-for-alpha-in-alternative-data.html "The Quest for Alpha in Alternative Data"), and allow algorithms to adapt to changing market conditions in real-time.

Because of this, fund managers can gain valuable time to adjust risk and [protect investments](https://www.financedigest.com/a-gold-ira-can-protect-your-retirement-investment.html "A Gold IRA Can Protect Your Retirement Investment"), while not worrying about the chaotic data flooding in and whether it could impair the model.

These AI-powered tools can be used by [fund managers to enhance current strategies or even build](https://www.financedigest.com/where-can-you-start-building-your-emergency-funds.html "Where Can You Start Building Your Emergency Funds?") one from scratch that is truly adapted to the new landscape. By using a new strategy, managers would be able to diversify the generation of alpha in an existing investment process or, importantly in times like these, allow managers to [mitigate risk](https://www.financedigest.com/new-isla-standards-provide-the-foundation-for-resource-optimisation-efficiency-and-risk-mitigation.html "New ISLA Standards Provide the Foundation for Resource Optimisation, Efficiency and Risk Mitigation").

**New start**

The [COVID-19 pandemic](https://www.financedigest.com/demand-for-temperature-controlled-pharma-packaging-solutions-to-reach-over-us-9-bn-by-2030-fmi-projects-a-decline-till-q2-2020-amid-covid-19-pandemic.html "Demand for Temperature Controlled Pharma Packaging Solutions to Reach over US$ 9 Bn by 2030; FMI Projects a Decline till Q2 2020 Amid COVID-19 Pandemic") is an opportunity for new technologies to prove their merits and show that AI and machine learning can offer a better way to make the most of data and adapt to the new normal. Traditional portfolio models have had their limitations exposed during this unprecedented time and aren’t fully fit for purpose in the new landscape. It’s crucial that fund [managers are able to recognise this and adapt before the possibility of another market](https://www.financedigest.com/food-waste-management-market-expected-to-expand-more-than-three-fold-through-2032.html "Food Waste Management Market Expected to Expand More than Three-Fold through 2032") crash happens and they feel the full brunt.

In contrast, AI-powered solutions are flexible to [changing market developments](https://www.financedigest.com/lane-change-assist-systems-market-overview-business-growth-development-factors-application-and-future-prospects.html "Lane Change Assist Systems Market Overview – Business Growth, Development Factors, Application And Future Prospects") and can alert fund managers about a possible market crash. Deep learning especially is a tool that can help fund managers generate alpha through their superior predictive capabilities. Those managers which embrace these tools as part of their [investment strategy](https://www.financedigest.com/investing-in-commodities-as-a-retirement-strategy.html "Investing In Commodities As A Retirement Strategy") will be able to lead from the front using data to better protect investors and generating alpha in uncertain and challenging times like these.

[\[1\]](#_ftnref1) [https://www2.deloitte.com/us/en/insights/economy/covid-19/investment-management-impact-of-covid-19.html](https://www2.deloitte.com/us/en/insights/economy/covid-19/investment-management-impact-of-covid-19.html)


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