Armien Tyer: applying new age Artificial Intelligence to active management

This podcast is brought to you by Absa, a member of Barclays. Biznews’ Alec Hogg is with Armien Tyer who is Chair of the Absa Investment Conference. Armien what gave you the idea to have it in the first place?

Thanks for that question, Alec. As I said at the beginning of the conference, Absa Barclays is known as a bank. We have a phenomenal bank insurance model but we’re not that prominent in investment. When we thought about our strategic intent of being in this space, it naturally led to the thought ‘well actually, we’re going to be out there, being on platforms and offering platforms so that we can have a dialogue’ and specifically deal with things, which are absolutely pertinent to our clients and where the thinking is in the market. Over the last 15 years, we’ve been to numerous conferences. Most conferences have very common topics around regulatory reform, cost, emerging markets, and African hedge funds, etcetera. It was quite a challenge to find something that would be really edgy whilst at the same time, prove our audience, clients, and colleagues with a grounded view of where markets are and provide the context of whether it’s really in an abnormal phase or whether it was fine to be exposed to certain risks.

I like this. You said ‘abnormal’, but there’s quite a lot of talk about disruption.

It’s amazing. The whole idea of actually providing the platforms for idea generation and sharing… I was actually at a Singularity University conference a couple of weeks ago. It’s not often that my mind’s intrigued by new thoughts. We all know that when we go to a conference, you sit there for six to eight hours and you walk away with two ideas. At the Singularity University, we met five of their professors out there (there main people) and I was blown away. I was always kept abreast of whether there was quantum theory, string theory, or where the edge of science was, in some way. I could only attend the first day, but what struck me was that despite being in a $100 trillion industry globally, no one spoke about the disruption of investments. We were planning this conference and we were thinking active/passive: how do you combine them? What’s actually good for the client? Then it struck me… there’s something here. Just about every single thing in the world’s being digitalised and we all know the arrival of the digital age (through Moore’s Law) is about the democratisation of everything.

You’ve been touching on robo-advisors on part. Where else is disruption going to hit?

I think it’s interesting. What fascinated me – and maybe it was a bit of serendipity – but immediately after I left that conference, I started reading. For example, if we have driverless cars, we have Uber, and we have the ability because of the genetic work we’re doing in medicine and immortality, for example… I started asking the question, “Where do I find signs of disruption?” For example, what we’ve seen in this last 30/45 minutes of discussion is that things that have been in the journals for 30 years hasn’t been adopted in the industry for a variety of reasons – and they’re complex reasons. The use of self-learning, artificial intelligence, machine learning, and algorithmic machines – we know there’s lots of black box trading (almost microsecond/nanosecond trading). However, the question is, “Can you then apply the new age artificial intelligence at the heart of what we’re doing, which is basically, active management?” It’s interesting that even someone like Warren Buffett at the Berkshire Hathaway (what they call the Woodstock of capitalism) also recognises that one of the challenges and potential threats to our industry is exactly that. For example, if you want be a great asset manager (specifically active), a large part of that is not just driven by metrics and mean reversion. It’s actually driven by personality…the ability to be unemotional in the face of the risks, which you’ve identified to be a great pay-off.

Of course, machines are unemotional.

Exactly. One doesn’t want to be naïve. I’ll say two things about naivety in this respect. Every single period of advancement in markets and technologies have always ended up, to some extent, in tears. In the conference this morning, I mentioned one very comfortable period was the early 1900’s for example, where we had radio. We had TV. We had the helicopter. We had the aeroplane. We had a whole variety of innovation but we had almost eight to ten recessions in a 30-year period, ending with the Great Depression.

What’s happening at Barclays Africa? What’s happening at Absa? You guys are thinking differently. There’s wind, going through there.

We have to give credit to Maria, our leadership team, Stephen van Coller, Mkhita, and Craig Bonn. Firstly, we are probably the sleeping giant on the banking side. We’re in 11 countries. We probably have two more countries in the form of Egypt and Zimbabwe, but we have nowhere near the kind of market share we should have for a brand that’s been on the continent for 160 years. Some of the stuff that we need to fix are fairly basic. In South Africa, just a couple of years ago, we were the most favourite bank. We had close to ten million customers, for example. We’ve always had this element of what I call ‘pockets of investment/things/excellence’, but I don’t think we’ve actually pieced it together in a coherent way. Coherent in a way that leverages the fact that we have a formidable client base. We have 10/11 million clients across Africa. Asset management is not capital intensive, but it has the ability to enhance the return immensely, for shareholders again. If we look at our current aspirations – 18 to 20 percent of return – it comes very easily if you scale our business. Lastly, in terms of the client, it’s great for clients because now its bank, invest, and insure.

I’ll tell you what I’m getting at. When I see the guys from Absa, there’s an engagement here. There’s an excitement about the future. You talk ‘disruption’. You don’t protect against disruption. Where is this coming from?

As corporate leaders, something that I see in many of the other leaders in the broader business is if you don’t like change (and this comes from the U.S. General), you’ll soon become irrelevant. It’s as simple as that. There are two ways to embrace change in big corporate. Firstly, you can’t be naïve. You have to be real. We have a big machine that generates loads of cash. You then have to transition that business and position for the future. We know this. It’s very difficult for a business to disrupt itself, but you have to create the seeds and the teams. You have to create the kind of culture that says, “We’ll continue what we’re doing. On the margin, optimise that but recognise for example, that the big disruptors are banks.” The big disruptors of asset management firms are not going to be the traditional other asset management firms. That’s actually at the heart of disruption. In a sentence, disruption is highly unpredictable. With hindsight, many people (including me), can always backwards engineer the answer as to how this happened. Much of the disruption happening now is non-linear. If you go back to early examples – mini mills and integrated steel mills – that was fairly simple to see it unfold. Today, it’s less so. It’s completely left field and it happens very quickly. It’s actually, a ‘winner takes all’ kind of situation. In many ways, it’s actually quite scary. As a leader, you have no choice but to almost have the courage to say, “Look, we have a cash cow but we have to build the call options for the future and have the right people.”

Armien Tyer from Barclays Africa, Absa Wealth and Investment. This podcast was brought to you by Absa, a member of Barclays.