95% of asset managers said the technology will be an essential component of success over the next three years
BOISE, Idaho, NEW YORK, CHICAGO, LONDON and HONG KONG, Sept 30 – Asset managers believe that artificial intelligence (AI) models will be crucial to delivering a new era of alpha returns, new research from Clearwater Analytics, drawn from its “GenAI and the Data Divide” study, shows.
The study, which covered a broad spectrum of fund managers including insurance asset managers, hedge funds, private markets specialists, and general asset manager, reveals that over the next three years, nearly all asset managers (95%) surveyed believe that AI will be important for their organization to meet its investment management goals, with 3% considering it to be absolutely critical to their success.
The Alpha Opportunity
AI-generated analysis and data is already being used for investment decisions between a quarter and half of the time at almost half (43%) of fund managers, according to the survey. Some managers have deeper integrations and at 10% it is being used between 50% and 74% of the time.
Almost all (96%) of asset managers expect to see AI change how work is done in each of their business functions over the next year. One fifth (20%) said that the change will be “transformative”, and a further 32% said that there will be “major change”.
All managers anticipate a degree of change within data, onboarding and normalization, and most of it is evenly split between minor (33%), moderate (31%) and major change (31%). The rest (6%) believe the change will be transformative.
In the case of reconciliation and exception management, more than half (59%) expect the change to be moderate (26%) or major (33%). More than a quarter (28%) expect it to be transformative.
More than nine out 10 managers (94%) said there will be change in accounting and financial close; a quarter (25%) said the change will be transformative, while a further 29% said it would be major and 26% moderate.
Perhaps the biggest change will occur within regulatory accounting and reporting, where only 4% said there would be little or no impact. More than a quarter (28%) said change would be major, but the largest group (31%) said it would be transformative for this part of the business.
This will influence communications and client reporting such as the production of performance reports, fact sheets and client summaries, where 84% said they expect moderate (25%), major (38%) or transformative (21%) change.
These changes continue through to investment research and due diligence, where more than a third expect moderate change (35%) while almost half anticipate major (28%) or transformative (20%) change,
Almost all (96%) of asset managers expect AI to change how portfolio construction and rebalancing is done. One third (33%) said the change would be major, while 14% said it would be transformative.
Nearly all (97%) of asset managers said risk monitoring and stress testing will be changed by AI, and almost three quarters (73%) said it would be moderate (36%) or major (37%).
The report suggests that AI is already well on its way to being established within the business processes of asset managers, as 95% said it will be important for their organization (25% critical) to achieve their investment management goals,
The Client Dividend
The developments are seen as beneficial for clients as much as managers, with 60% of them confident that the use of AI will also help them to profit from its application, while two thirds (66%) believe it will reduce fees.
More than half (54%) believe AI will have an impact on reducing headcount (31% a significant impact). Yet more than a third believe that for those spared any cull, it will have a significant impact on the increase of wages (37%) while a further 22% said it will have considerable impact.
The Workforce Equation
More than half of managers (58%) said that AI would have an impact on general cost savings, though more than a quarter (27%) were unsure and 15% said it would have little or no impact.
Ultimately, the client will be the winner from the application of AI, said the report, two thirds (66%) are adamant it would improve service, in addition to reducing fees.
More than half (56%) believe that asset managers will achieve higher alpha as a result of using AI in their processes.
Souvik Das, CTO at Clearwater Analytics, said: “The research clearly shows that AI is already very much part of asset management operations, and firms expect the integration to deepen from here. They believe it will give them competitive advantage.
“There’s good news for clients, too. Managers expect the same technology that streamlines their operations and shortens administrative lead times to result in better service and reduced fees.
“AI will drive up standards and reduce delays and waste for asset managers, their clients, and the wider regulatory landscape. The application of AI will unlock a new, mutually beneficial business model for asset management industry.”