More than 90 per cent of investment managers either use or intend to adopt artificial intelligence (AI) tools to drive efficiencies, super-charge analysis or find alpha, according to a new Mercer global survey.
“Current use of AI across investment strategies and research stretches far beyond the traditional ‘quant’ cohort,” the Mercer study says. “Nine out of 10 managers are currently using (54%) or planning to use (37%) AI within their investment strategies or asset-class research.”
But while the rise of so-called ‘generative AI’ systems such as ChatGPT have sparked the latest frenzy, the survey shows the investment industry has long dabbled with related technology such as large-language models (LLMs), deep-learning (DL) and natural language processing (NLP).
“Just over a quarter of managers (26%) report current use of gen AI, relative to nearly half (48%) currently using ML, and 44% using LLMs and NLP,” the report says.
“However, gen AI is a focus in managers’ future plans. Just over half of managers (51%) intend to use gen AI capabilities in the future, compared with 43% who plan to use LLM and NLP, and a quarter who plan to use ML (25%).”
Humans remain safe from the AI investment overlords for now at least, the survey notes, with most respondents tipping the technology to act as a super-efficient, if somewhat unreliable, co-worker rather than a harbinger of disestablishments.
“… a significant proportion of current AI processes remain reliant on constant human intervention, reinforcing the role of AI and ML technologies as a supportive ‘tool’ rather than a direct replacement for humans across the investment process,” the Mercer paper says.
“More than half of AI-integrated investment teams report that AI analysis informs rather than determines final investment decisions. A fifth report that AI proposes investment decisions, which investment teams can override.”
Similarly, a majority of managers either using, or planning to adopt, AI don’t expect to see a fall in team headcounts over the next five years – although the mix of expertise may change.
“… managers currently using AI (72%) as well as those that plan to (80%) believe AI will increase the need to recruit staff with new skillsets, and to find and retain the right talent (64% and 52%, respectively).”
Despite concerns about the data quality, integration risks and “divergent regulation”, the survey found most respondents already using AI remain upbeat about the broader impact of the technology – picking a US$14 trillion leg-up to the global economy, or a 9 per cent jump in GDP, by 2030.
“Overwhelmingly, managers anticipate AI’s benefits to play out through enhanced productivity, whereas expectations around the future impact on both AUM [assets under management] and firmwide revenues are much more mixed,” the Mercer report says.
“… Interestingly, managers expect AI to increase market efficiency at the same time as increasing concentration in the market, a phenomenon typically resulting from inefficient herding mentality.”
Nick White, Mercer global strategic investment research director, floats another potential outcome of the AI race, however: a dead heat.
“That nine in 10 managers are already using AI — or are planning to — as part of their investment and research process corroborates the thesis that managers are actively seeking an edge from AI (and we recognize the potential for ‘AI washing’ here),” White says in the report. “Of course, managers may not see an alpha return on their investment in AI if everyone is using the same AI techniques. Any new-found anomalies may quickly disappear, as alpha is a zero-sum game, and everyone is spending.”