Learning to Manage Investment Portfolios beyond Simple Utility Functions

TL;DR

This paper introduces a generative adversarial network framework to learn complex investment strategies from fund data without explicit utility functions, capturing known styles and revealing implicit objectives.

Contribution

It proposes a novel GAN-based method to model fund strategies directly from data, bypassing the need for predefined utility functions or reward signals.

Findings

Successfully captures known investment styles like growth and value.

Reveals heterogeneous fund behaviors beyond traditional models.

Provides interpretable representations linked to expert labels.

Abstract

While investment funds publicly disclose their objectives in broad terms, their managers optimize for complex combinations of competing goals that go beyond simple risk-return trade-offs. Traditional approaches attempt to model this through multi-objective utility functions, but face fundamental challenges in specification and parameterization. We propose a generative framework that learns latent representations of fund manager strategies without requiring explicit utility specification. Our approach directly models the conditional probability of a fund's portfolio weights, given stock characteristics, historical returns, previous weights, and a latent variable representing the fund's strategy. Unlike methods based on reinforcement learning or imitation learning, which require specified rewards or labeled expert objectives, our GAN-based architecture learns directly from the joint distribution of observed holdings and market data. We validate our framework on a dataset of 1436 U.S. equity mutual funds. The learned representations successfully capture known investment styles, such as "growth" and "value," while also revealing implicit manager objectives. For instance, we find that while many funds exhibit characteristics of Markowitz-like optimization, they do so with heterogeneous realizations for turnover, concentration, and latent factors. To analyze and interpret the end-to-end model, we develop a series of tests that explain the model, and we show that the benchmark's expert labeling are contained in our model's encoding in a linear interpretable way. Our framework provides a data-driven approach for characterizing investment strategies for applications in market simulation, strategy attribution, and regulatory oversight.