Presented in a Q&A format, Kenanga Investors Executive Director and CEO Ismitz Matthew De Alwis shares insights into the Kenanga Alternative Series: Islamic Global Responsible Strategies Fund in this first of a three-part series.
Why did Kenanga Investors decide to bring this product to market?
Innovation in Islamic asset management has been relatively limited over the past 20 years, with Shariah compliant investment products accounting for less than 1% of the world’s financial assets. Islamic investors have been largely underserved, with few options beyond concentrated, actively managed funds or passive index trackers.
However, the industry is now at a turning point, driven in no small part by increasing issuer and investor sophistication, as well as the exponential growth of financial data. With approximately 2.5 quintillion bytes of data generated each day worldwide, traditional methods are no longer adequate.
The target fund manager, Chicago Global (CG) addresses this gap, leveraging advanced machine learning techniques to offer an advanced, data-driven solution designed specifically for Shariah compliant investors.
At Kenanga Investors, we continuously push the boundaries of what is possible, to offer our clients cutting- edge investment solutions. These innovative products serve as cornerstones for portfolios designed to fulfil lifelong needs and lifestyle aspirations.
Our partnership with CG is a big step forward in this mission. By leaning on their extensive experience in applying AI and machine learning to investment strategies, we have a partner that can build a Shariah compliant feeder fund, i.e. the Kenanga Alternative Series: Islamic Global Responsible Strategies Fund (“Fund”), which offers a sophisticated, data-driven approach to investing.
The Fund’s significance cannot be overstated. As the first of its kind in the Asian market, it has the potential to redefine Shariah investing on a global scale. We believe this unique product will set a new standard in the industry, uniting the ethical principles of Islamic investing with cutting-edge technology.
Could you share the story behind Chicago Global and what makes them unique in the market?
The core team behind CG came together in 2015 at University of Chicago. A few big things were happening at the time.
First, the gap between what was possible at the frontier of finance and what was available to investors was wider than ever. Next, the market moving data was growing faster than ever. And the power to process this data was becoming cheap enough to deploy these technologies outside the lab. These factors converged to create a wave of opportunity, which the CG team set out to ride.
By redefining investing as an information problem, the team could deploy information technology to attack it. This allowed them to benefit from leaps in artificial intelligence, combining the pattern recognition capabilities of neural networks with the adaptive learning of machine learning algorithms.
The target fund manager’s strategies are rooted in the rigorous approach to asset pricing pioneered at the University of Chicago over the last 70 years.
What sets them apart is the integration of advanced technology with battle-tested investment strategies, building upon decades of research in behavioral finance and quantitative asset pricing. This unique blend of cutting-edge technology and time-tested investment strategies distinguishes it from other fund managers, offering a distinctive approach that goes beyond the limits of conventional methods.
The idea to bring machine learning and big data into Shariah investing stems from the belief that responsible, ethical investing works better when it encapsulates a richer information set. The result is a very special product that combines moral principles with sophisticated risk management and return optimization.
This innovation was recognized by the Monetary Authority of Singapore through the award of a Financial Sector Technology and Innovation grant.
What sets the Fund’s strategy apart from other asset management companies, especially in an era where AI and ML are widely adopted, and how will it maintain a competitive edge?
The investment landscape is evolving rapidly, and while legacy methods still hold value, the sheer volume and speed of financial data can be overwhelming. Many asset management companies have begun exploring AI and machine learning (ML), but few have fully embraced these technologies as core drivers of their investment strategies.
When we look at AI-focused funds today, we can place them on a spectrum. On one end, you have existing tech funds that have simply been rebranded as AI. The managers buy shares in “AI stocks” but have not evolved to using AI in their investment decisions. Essentially, they are chasing market sentiment rather than leveraging AI.
The investment process has yet to evolve – it is still driven by people reading about AI and discussing it in conferences and pubs.
On the opposite end of the spectrum are the so-called black box funds. They are not run by traditional portfolio managers but by computer scientists, physicists, and statisticians. Their strategy revolves around gathering vast data sets, constructing a diverse array of AI models, forcing these models to compete with each other, and then handing control over to the best. Human oversight is minimal. The machines call the shots.
Chicago Global occupies a unique position in the middle of this spectrum, blending AI with human judgment and creativity. This balance is considered appropriate given the current state of technology, the constantly evolving market landscape, and – most importantly – the profound responsibility of managing people’s life savings.
In this approach, AI is a tool, not a decision-maker. It does the heavy lifting role in sifting data and assessing risk. However, decisions are made by experienced human investors.
Furthermore, the companies selected are not necessarily technology companies – they are diverse businesses identified through AI-driven insights, combined with human oversight, as offering compelling value.
This balanced approach offers several key benefits.
First, the AI-assisted strategy identifies opportunities across various sectors, ensuring diversification that pure tech or AI-focused funds often lack.
Second, high level of transparency and accountability are maintained, with AI’s capabilities supporting, rather than replacing, human decision-making. This ensures a level of explainability that’s often missing in black box AI funds.
Lastly, the approach recognizes the profound responsibility of managing people’s life savings, balancing innovation with a careful awareness of risk, and combining advanced technology with timeless investment strategies.
In summary, this hybrid model leverages the strengths of both AI and human intelligence, representing a responsible deployment of technology in investment management, especially when entrusted with safeguarding people’s financial futures.
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