Systematic Asset Management

Abstract

Since the last decade, financial technology (Fintech) has made a lot progresses in many angles of the finance industry from the novel concepts of the transaction to the systematic/intelligent management of financial products. Back to the 80s, the first attempts to combine applied mathematics, numerical algorithms with high-performance computers in trading and portfolio construction gave birth to a new trend of asset management "systematic asset management". Employing computers to perform complex calculations, to estimate the optimal trading quantities have improved the gain probability and the risk management. Systematic asset management must be considered as one of the first revolutions in financial technology. However, it quickly became the industrial secret of many successful hedge funds such as Renaissance, D.E.Shaw, Two Sigmas, CFM, e.t.c. The 2008 crisis has changed the investment point of view of investors and the regulators. They required more and more efforts from the hedge fund industry and asset management in the transparency of their portfolios and their risk management. Some management styles such as "Smart beta" or "Risk Parity" were revealed to the large public with very detailed explanation both on the concept and the implementation. Recently, a new class of investment strategies named "alternative beta" or "alternative risk premium" was also opened to the public. It consists of combining well-known trading strategies with systematic risk management in order to offer high performance and decorrelated return to the market benchmark. These last evolutions allowed more and more opportunities for Fintech to improve the systematic asset management. Machine learning and AI can be employed to explore novel trading strategies, to detect anomal risks, to reduce the operational risks or to simulate stress-scenarios whereas blockchain is a great candidate for future improvement of the current transaction system. The objective of this note is to explain the main principles of the systematic asset management through some simple examples. We expect that our approach may be useful to identify the potential applications of Fintech in this domain.