1. General

Category

Category

Finance / Credit Companies

2. Project Details

Company or Institution

Cyan Reef B.V.

Project

Cyan Reef impact investing platform

General description of the AI solution

While AI has the potential to provide large incremental value to a wide range of sectors, its adoption till date has been driven primarily by the commercial sector. Large-scale AI adoption strategies need to strike a balance between narrow definitions of financial impact and the greater good. The 2030 Agenda for Sustainable Development represents an important cornerstone in fostering the SDGs. Its success depends on reallocating financial capital towards the high-impact assets. Renewables alone require an increase of >150%/annum till 2050to achieve the Paris Agreement . Current national budgets are unable to cover these costs, and calls for a large public-private collaboration.

Cyan Reef is a collective effort to promote and scale retail impact-themed investing. Through a proprietary digital wealth management platform, it allows people to benefit from good wealth management and personal finance practices, while channelling their assets into SDG-contributing investment products. Retail users open an investment account, specifying their preferences and goals, and the AI driven platform automatically manages their investment portfolios, simulating a regular wealth advisory practice.

Cyan Reef is an inclusive platform directed at retail, and also over-looked user segments (younger and lower/middle income customers), which have been excluded from traditional wealth management service provisions. It addresses inequalities and bottlenecks in the asset management industry, operating up to 5x more effectively in comparison to regular asset managers. Exemplifying such an approach – a lower barrier to user entry, set at only $250 (in comparison to typical $250K minimum ticket size in the industry).

The solution has several benefits compared to the competition: focusses on operational efficiency and long-term wealth creation, implements latest portfolio optimization algorithms and is automatically calibrated to generate more adequate risk-priced portfolios according to user behavior. Cyan Reef fosters a systematic transformation towards sustainable economies of the future by redirecting retail funds towards best ESG performing assets.

Website

https://cyanreef.com/

Organisation

Cyan Reef B.V.

3. Aspects

Excellence and Scientific Quality: Please detail the improvements made by the nominee or the nominees’ team or yourself if your applying for the award, and why they have been a success.

AI application is three-fold: Reactive AI algorithms to automate the operational processes: on-boarding, portfolio rebalancing and optimization, risk management, other, – leading to 5x more operational efficiency in comparison to conventional asset management models. The portfolio optimization (PO) algorithm is based on a multi-swarm cooperative particle swarm optimization algorithm (MCPSO). We use a multi swarm algorithm due to its greater flexibility and wider approach to solution search. The search information can be transformed among sub-swarms by a central communication mechanism that uses a center particle whose position is averaged by the sub-swarms to guide the flight of particles in all the sub-swarms. This accelerates the convergence rate in finding the optimal portfolio. The MCPSO will optimize an improved version of the Markowitz Mean–Variance method which will be multidimensionally modified, and complemented by elements from other approaches such as value at risk (VaR) and conditional value at risk (CVaR).

Limited memory AI predictors for user behavior insights: a function of customer profile (risk preferences, goals, financial health) to saving and investing behavior (regular savings, withdrawals, investing horizon); enables us to calibrate more adequate risk-priced portfolios.

Reactive AI algorithms are established and detailed. Limited memory AI predictors are at stage of testing and systematization. Other similar systems only implement Quadratic programming or Monte Carlo simulations which are very traditional methods by now [1]. Our multi-swarm principle allows for a greater probability and efficiency in finding the global optimum because the problem is approached multidimensionally. Our approach allows for easier updating with the latest research and methods. The basic principles of our work are [2]. Other work regarding our PO and MCPSO approaches is very transparent and can be found online.

The research has been subject to the internal R&D process for commercial valorization, limited-to-no public exposure.

[1] https://doi.org/10.1057/s41260-018-0092-9
[2] https://doi.org/10.1007/978-3-642-04020-7_83

Scaling of impact to SDGs: Please detail how many citizens/communities and/or researchers/businesses this has had or can have a positive impact on, including particular groups where applicable and to what extent.

Although the retail asset management industry is being disrupted by new tech-driven competition, new solutions do not focus on SDG-guided systematic change towards more sustainable economies. New entrants’ commercial growth is driven by sub-par asset management practices directed specifically at vulnerable user groups.

Cyan Reef consolidates the recent industry and academic practices in AI applications for operational optimization and “democratization” in financial asset management. It bridges the AI-based technology applications with proprietary financial innovation (Impact Investing Materiality, ESG Screening, Transparency, and Good Governance), bringing forward a gateway for retail savings to be redirected towards high-SDG performing assets. This systematically facilitates a number of SDGs directly (10, 12) and indirectly through the investable asset universe (1, 4, 5, 6, 7, 9, 11, 13).

The Key Performance and Impact Indicators are transparent and tied to the performance of the underlying financial portfolios. The progress can be derived, measured, and compared with transparency, based on the SDG contribution of the underlying portfolios (e.g. high-ESG performance listed companies, green funds, private equity in the impact space, etc.).

Cyan Reef is developed in the form of a digital financial service in a retail space and is available for the general public with simplicity, transparency, and ease of use and is developed as a commercial self-sustaining venture. The business model is set in place to facilitate mass adoption of the impact investing tool (focus on downstream value chain segments). A broad retail positioning opens a strong potentiality for replication across several UNESCO Member States to ensure social and inclusive growth. Such market expansionism has been factored in within our business projections. The commercial character of our Initiative signifies that the performance indicators and time goals are transparent and clearly defined. We are focused on developing the global AI ecosystem by publishing synergized research across different fields: algorithms, finance and psychology.

Scaling of AI solution: Please detail what proof of concept or implementations can you show now in terms of its efficacy and how the solution can be scaled to provide a global impact ad how realistic that scaling is.

Cyan Reef opens channels for retail users to invest in high-impact generating industries that have track-record, proven to be operational in facilitating the SDGs. The ESG screening, and approaches towards impact investing outperformance are grounded in the proprietary cross-discipline financial research, brought forward by a multinational research team, in cooperation with NGOs (World Economic Forum Network), academic institutions (Audencia BS, Rotterdam BS, Shenzhen U), and commercial sector (SBC Fintech Amsterdam 1921 B.V.).

According to Our research, the core drivers behind the impact-themed investing overperformance (estimated at up to 4% alpha) include:

– Pre-emption of negative externalities
– Counter-cyclical behavior
– Decreased volatility relative to the market
– Liquidity-based premium
– Long-term orientation.

Cyan Reef is positioned in a broad fintech retail segment, enabling high market scalability. The AI work is transferable beyond asset management applications and is applicable in macroeconomics (fiscal policy) and psychology (behavioralism). The data gained throughout the operations will further enhance the research on impact- and SDG- oriented investing. Our solution can make a significant impact within the operating markets, achieving >25.000 members by 5th year of operations (Equiv. to $3.2 mn. cumulative Assets Under Management).

The key budget drivers for scaling are:
– Regulatory costs (on a market-specific basis)
– Research and testing of the digital solution within the target communities
– Promotion activities facilitating the adoption of the solution by households.

The cooperation and partnership behind our solution are globally diverse, coming from 9 UNESCO member states. Cyan Reef facilitates the creation of diverse and large communities of impact investors.

The commercial activity is subject to financial regulation in the Netherlands, we demonstrate the highest levels of compliance (including GDPR) and governance standards. Elements of the mature know-how are available within the stakeholders’ academic circles to facilitate research in AI, financial innovation, and impact-themed investing.

Ethical aspect: Please detail the way the solution addresses any of the main ethical aspects, including trustworthiness, bias, gender issues, etc.

Ethical considerations and implications of AI (both long and short term):

As AI-based solutions permeate the way we live and do business, questions on ethics, privacy and security will also emerge. Cyan Reef solutions are based on ethical considerations of AI, and are a derivation of the FAT framework (Fairness, Accountability and Transparency). Cyan Reef relies on authenticity and good governance standards when defining the ethical scope of impact. Different dimensions can be regarded:

– Cyan Reef addresses the discrimination by wealth status, present within the current wealth management setup.
– The on-going validation research confirms that the value proposition resonates strongly with all gender and ethnic groups.

After the commercial validation on the anchor market (the Netherlands), the Proposed Initiative can be transferred to match different market conditions, evolve scalable solutions for emerging economies including the “Global South”; and endeavors to tackle some of the global challenges from AI’s perspective.. One of the key philosophies of our ambition includes responsible AI: ensuring adequate privacy, security and IP related concerns and balancing ethical considerations with need for innovation.

Trustworthiness of AI solution:

Cyan Reef is based exclusively on: lawful, ethical and robust solutions, aimed at enabling and ensuring ethical, safe and innovative uses of data, including AI. It is subject to financial regulation in the Netherlands, and demonstrates highest levels of compliance (including GDPR) and governance standards.

Inclusiveness of solution:

– Innovative approaches: proprietary and academic research in financial innovation, impact investing materiality and investor behavior
– Models of good practice: the executive team behind the Proposed Solution has a proven track record in creating good governance structures for global finance.
– Cyan Reef promotes equal opportunity in wealth creation, democratizing access regardless of the individual background of a user.

Cyan Reef approach to implementation of AI driven business model is guided by optimisation of social goods and inclusive growth, rather than maximisation of top-line growth.