Gen AI is evolving to an integral part of the middle and front-office for alternative investing, according to Melanie Pickett, Head of Asset Owners, Americas at Northern Trust.
“By improving the analysis of unstructured data to extract valuable insights that were previously difficult to discern, Gen AI is helping to increase efficiency and unlock new opportunities,” she said.
A new survey sponsored by Northern Trust reveals a significant shift by global pensions and other asset owners toward the adoption of artificial intelligence tools, with more than 55% of respondents planning to use AI in some capacity in 2024.
Conducted and developed in partnership with AlternativesWatch, the survey and whitepaper, Alts in the AI Era, feature insights from 100 global asset allocators on how AI technology could impact institutional investors’ investment processes.
The majority of the respondents (55.4%) have an alternative investment portfolio between $1bn and $20bn.
According to the findings, only 22.2% of respondents have used AI in their investment processes.
However, the results indicate that AI avoidance is “less about hesitancy than technical or personnel constraints”.
“The majority of respondents – 80.7% – said they currently don’t have the technology or talent to accommodate AI integration,” said Pickett.
The survey also found that 42.1% believe that AI is not advanced enough to be worth the investment, while 36.8% are satisfied with their current technology.
According to Pickett, the findings indicate many organizations have regulated AI across the board, likely due to C-suite concerns about compliance and potential liabilities.
Meanwhile, some respondents highlighted security concerns.
“There are security risks we are still trying to understand,” said one of the respondents.
According to the survey, those who plan to use AI in 2024 believe it has the potential to assist in decision-making and research.
Digitizing documentation to streamline internal processes was the leading case, with 77.8% choosing this option.
Meanwhile, 70.4% of responded indicated that writing investment recommendations and memos is an area where AI can assist.
In addition, 66.7% of respondents believe AI can help aggregating and cultivating market insights from various sources.
The survey results also revealed that a majority of asset owners believe AI can help to improve productivity.
“Investors in many ways are on the AI frontlines and yet, a healthy number have not spent time exploring the potential of this groundbreaking tool set,” commented Pickett.
“It’s still early days and for the most part allocators don’t see AI tools as replacing investment staffers or integral large scale portfolios decisions,” she said.
Pickett added that much more investment in AI on the part of service providers is on the horizon.
“It could be that AI may be that charmed elixir that leads to new sources of alpha, better asset mixes and even a better understanding of performance drivers,” she said.
“All may not buy into the hype today, yet it seems that LPs are not fully writing off the potential just yet,” she concluded.
