According to Melanie Pickett, Head of Asset Owners, Americas at Northern Trust, artificial intelligence (AI) is becoming an integral part of the middle and front office for alternative investments.
“By improving the analysis of unstructured data and uncovering valuable insights that were previously difficult to identify, Generation AI is helping to increase efficiency and unlock new opportunities,” she said.
A new survey commissioned by Northern Trust shows that there is a clear trend towards the use of artificial intelligence tools among pension funds and other asset owners around the world, with more than 55% of respondents planning to use AI in some form by 2024.
Conducted and developed in partnership with AlternativesWatchThe survey and white paper, “Alts in the AI Era,” feature insights from 100 global asset managers on how AI technology could impact institutional investors’ investment processes.
The majority of respondents (55.38%) have an alternative investment portfolio between $1 billion and $20 billion.
According to the results, only 22.22% of respondents have used AI in their investment processes.
However, the results suggest that avoiding AI is “less about reluctance than about technical or human resource limitations.”
“The majority of respondents – 80.65% – said they currently do not have the technology or talent to enable AI integration,” said Pickett.
The survey also found that 42.11% believe AI is not advanced enough to be worth the investment, while 36.84% are satisfied with their current technology.
According to Pickett, the findings suggest that many organizations have regulated AI across the board, likely due to executive concerns about compliance and potential liability.
However, some respondents expressed security concerns.
“There are security risks that we are still trying to understand,” said one respondent.
According to the survey, those who plan to use AI in 2024 believe it has the potential to help with decision-making and research.
The most common way to optimise internal processes was to digitise documents; 77.78% of respondents chose this option.
Meanwhile, 70.37% of respondents said that AI can be helpful in writing investment recommendations and memos.
In addition, 66.67% of respondents believe that AI can help aggregate and develop market insights from different sources.
The survey results also showed that a majority of asset owners believe AI can help improve productivity.
“Investors are at the forefront of AI in many ways, and yet many of them have not spent time exploring the potential of this groundbreaking toolset,” commented Pickett.
“It is still early days and most investors do not believe that AI tools will replace investment staff or integral decisions on large-scale portfolios,” she said.
Pickett added that service providers are expected to invest significantly more in AI.
“It could be that AI is the magic potion that leads to new sources of alpha, better asset mixes and even a better understanding of performance drivers,” she said.
“Maybe not everyone is excited about the hype today, but it seems that LPs have not completely written off their potential yet,” she concluded.
