Artificial intelligence (AI) is inescapable, and the investment management industry has chosen to embrace it wholeheartedly.
More than half of managers (54 per cent) are currently using AI within their investment strategies or asset class research and that enthusiasm continues to grow with 37 per cent planning to use (37 per cent) that technology in the future AI, according to a 2024 Mercer global investment manager survey.
Generative AI (Gen AI), which consultancy EY describes as “the new poster child of AI applications [and] promises to deliver superior performance while executing information search, retrieval and synthesis tasks on unstructured content, along with content generation capabilities”, is among the most likely AI to join asset manager toolboxes.
The Mercer research shows that 26 per cent of asset managers currently use Gen AI while 51 per cent plan to do so in the future.
This comes as no surprise to Oliver Johnson, chief revenue officer at SaaS provider SimCorp, who says Gen AI has multiple functions for the buyside.
“AI in investment management isn’t new; we’ve seen hedge funds using the technology to help them make investment decisions for years. The main difference now is the steps that Gen AI has taken. It ultimately makes that technology more accessible, enhances productivity and supports multiple aspects of asset management.”
Johnson says the buyside is ‘on an AI journey’ starting with what he describes as ‘conversational AI’ moving to incorporating the technology into more complex investment decision making.
“Conversational uses Gen AI to ask questions and improve productivity, but you rely on your users to have some skills in prompting the AI. An example there could be, ‘tell me my exposure by geography or by sector and what are the biggest contributors to my portfolio?’. The answers can help inform decision making.”
Johnson adds that Gen AI is also helping investment managers process the plethora of reports they receive from multiple sources into a consistent digestible format.
“Asset managers get a lot of analyst reports but they’re not very good at storing those in consistent formats. AI gives the ability to pull a research report from various sources, collating the data and providing a report, which makes life more efficient.”
Johnson says more managers are moving to using AI as an assistant where it can perform autonomous tasks.
“An example there is asking AI to create a block trade or transactions or rebalance the portfolio. It’s still human led, but the technology can take a task through multiple workflow steps.”
This is especially useful, Johnson says in private markets, where investors receive capital calls in myriad formats.
“If you’re a big pension fund with 200 private equity fund managers, every single week, they get different call and distribution notices coming into different formats. Machine learning can take that data, even if it’s in a different kind of format, and create a transaction in the platform. Again, it’s an efficiency step,” he says.
More recently, SimCorp has been focused on taking asset managers into the more advanced stage of AI, which Johnson calls an autonomous copilot.
“This is where AI collaborates with the users, it anticipates needs and it’s more proactive than reactive. Rather than asking the AI to rebalance the portfolio, it would detect a cash injection and suggest a simulation of three different ways that you could rebalance your portfolio,” he says
The Mercer survey reports that a quarter of managers report using AI to support investment decision-making, broadening inputs to investment risk-management frameworks (21 per cent), and portfolio construction and rebalancing (18 per cent).
For asset managers concerned such technology looks as if it is becoming a threat to jobs, Johnson argues that humans are still needed to make the ultimate rebalancing decision.
“We strongly believe that technology is not going to replace portfolio managers. Technology is going to make them way more efficient, but it’s still going to be the human at the end that makes the call.”
He continues: “We all thought a few years ago we wanted autonomous driving cars but that hasn’t happened. I think it’s something similar here. I don’t imagine we would ever be in a regulatory or a social place where we don’t want humans making the investment decisions, we just want to help them make better ones.”
