Institutional investors plan to increase their use of AI to guide investment decisions, according to research by Thomson Reuters and Greenwich Associates.
A survey of CIOs, portfolio managers, and investment analysts found that only 17% of companies are using AI as part of their investment process today, but 56% said they plan to increase the level of artificial intelligence integration with the investment process in the next few years, and 40% expect to increase their budgets for AI
Companies are increasingly looking to use AI such as machine learning and natural language processing when analyzing data, news, and content in their investment processes. The report says that the way institutional investors go about researching their investments is undergoing significant change, due to factors including an information explosion, new regulations, new technologies, and evolving commercial models.
Investors are also looking to use ‘alternative data' - unique data sets that, by themselves or in conjunction with traditional market data, could provide additional insight and competitive advantage. Seventy-percent of respondents have either implemented alternative data or plan to in next twelve months as an additional input to their fundamental investment approach.
Investors mainly see AI having the biggest impact in analyzing data, news and content. The technology will improve as more data sets are added and users become more skilled, which will vastly-improve decision making, the report notes. This will increase demand for data scientists, AI expertise and quantatative finance qualifications.
Alternative data sets under consideration include many web- or analytics-driven data sources, including data scraped from the web, search trends, web traffic, credit card, PoS and other consumer transaction data, geolocation and footfall data, wearables, drones and IoT data, app installs, and social media sentiment.
"It seems clear that the investment research landscape will look very different in the next five to ten years" said Mahesh Narayan, global head of portfolio management and research at Thomson Reuters. "Investors will likely need to obtain more data and information to feed new AI and machine learning technology they invest in, including alternative data to identify new ways of finding alpha. We expect active portfolio managers will also be looking less to the sell-side for their research with a greater reliance on internal research and vendors to supply the information and tools they need."
"Traditional investment research is under threat thanks to the explosion of new data and the technology." said Richard Johnson, vice president, market structure and technology research at market intelligence and advisory firm Greenwich Associates. "At the same time, regulations requiring the unbundling of research have put the spotlight on its value, creating a significant change in the investment research landscape. Financial information providers have an opportunity to assist the asset management industry in this transition by helping make sure portfolio managers and investment analysts have the necessary data and tools needed to evolve their business models so that they can take more control of their investment research process."