AI Is Getting To Work In The Highly Regulated Investment Management Industry – Forbes

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AI was all the rage dominating last month’s Davos knocking the perennial favorite of blockchain technology off the Promenade and making it look “very last year.” The conversations focused on “the serious strides in global collaboration on governance and setting the right guardrails.”
This echoed the U.S. Executive Order (E.O.) 14110 on Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence in 2023, and U.K. Prime Minister Rishi Sunak’s message at the global AI Safety Summit 2023 that the “future of AI is safe AI.”
Not a moment too soon for this message, with Nvidea, the leader of the Mag 7, experiencing a 16 percent share price bump following record fourth quarter sales with co-founder and chief executive Jenson Huang commenting, “Accelerated computing and generative AI have hit the tipping point, demand is surging worldwide across companies, industries and nations.”
Many are talking about how AI is implemented and how it affects everyday lives, but the message of “safety first” does not quite reconcile with the ongoing disruption and upheaval in the jobs market coupled with the investment potential of generative AI.
Recent data from the website Layoffs.fyi which tracks the tech jobs market shows generative AI is even hitting employment levels among the feted tech giants. Around 34,000 jobs have been lost so far this year by companies including Microsoft, Snap, and eBay as they have switched investment into generative AI at the expense of other parts of their business.
A total of 138 tech companies have cut jobs this year, according to Layoffs.fyi, demonstrating how AI, or to be precise, the desire to invest in AI, is disrupting the tech jobs market.
Spotify chief executive Daniel Ek has said, “We need to become more efficient by deprioritizing some of the existing things, but we also need to invest in some of the new.”
Enterprise software company SAP, has announced a “company-wide transformation” including cutting around 8,000 jobs as it increases its focus on AI.
Pitchbook data on investment in startups last year shows AI startups attracted one out of every three dollars invested in the U.S. in 2023 as investors competed to back companies developing AI technology following the stunning debut of OpenAI’s ChatGPT. Venture investors took a bigger slice of a shrinking cake as total investment dropped to $170.6 billion from $242.2 billion in the previous year. OpenAI and Anthropic alone accounted for 10 percent of the total deal value.
Generative AI is very much focused on sectors such as media, marketing and law where “text” is an important part of the business.
The brutal verdict from Ken Smythe, founder of Next Round Capital summed it up, “AI names are trading at a premium. Some software names are trading at a premium. Meanwhile, food and grocery delivery and crappy consumer concepts are all trading down 95 percent from their last round.”
AI continues to disrupt in new ways hitting venture capital and startups just as much as traditional tech giants, and to be frank, it looks a pretty volatile experience. Where the AI “safety first” policy of world leaders resonates is in the highly regulated and controlled investment management industry.
AI: The Next Frontier For Investment Management
Consultancy Deloitte is convinced about the disruptive impact of AI on investment management claiming it is the “the next frontier for investment management.”
Research by Ocorian has found that almost all alternative asset fund managers believe AI will be important to the growth of their business over the next five years with 43 percent surveyed believing it will be very important. More than one in three (34 percent) say they have conducted very successful tests of AI in projects within their firms.
The London Stock Exchange says generative AI is a “powerful business changing tool” for investment management identifying five key areas where it will have an impact: legal and consulting, software and IT, research and development, sales and marketing, and manufacturing.
AI can sift through legal documents and support due diligence while it can reshape how software codes are written. It can speed up research and boost social media marketing and draft technical sales collateral. AI models can reorganise the processing of tasks currently carried out manually.
For all the talk, fund managers admit that in the financial services industry is only at the beginning of the AI journey. BNP Paribas has said that while it is “using AI in a number of areas” it is at the same time keeping a close eye on the associated risks”.
Risk, the domain investment managers must master to make money for investors, is the key word to bear in mind and a guide to how the investment management industry is already using AI. Ironically enough, using AI to help better understand the risks and impact that AI will have on (other) industries in order to better risk adjust investments, is an emerging hot topic among risk boffins.
AI is on the march in investment management, a highly regulated industry, and along with the use of alternative data such as credit card spending and employment data, such as average salaries and hiring plans, AI is regarded as increasingly key for fund managers to generate higher returns as they look for ways to use data to differentiate themselves in the market.
The scope of AI use cases are also expanding to seek to improve operational efficiency and reduce costs, to handling other aspects of the fund management industry service offering including investor engagement.
AI’s biggest use case is in risk management where it can give managers tools to improve compliance and risk management functions while automating data analysis, including external data, to better anticipate major market events and scenarios.
Ocorian’s research with alternative fund managers shows compliance and regulation is regarded as the area most likely to provide a role for use of AI. Survey respondents ranked compliance and regulation first above sales and marketing activity, recruitment, administration, identifying and reviewing investments, and client servicing and reporting, as the functions that AI will have the most impact on over the next five years.
More than nine in ten (92 percent) alternative investment managers are already using AI as part of risk and compliance procedures. Around one in ten (11 percent) started doing so more than two years ago. Over half (55 percent) started two years ago, and 24 percent started between one and two years ago.
Joe French, Managing Director and Head of Financial Crime at Ocorian, says, “The majority of alternative fund managers have already been using AI within their compliance and risk procedures for around two years. When used for the right type of tasks, AI can transform the ability of over-stretched, under-resourced compliance teams.”
His view is backed up by further specialist research Ocorian conducted among compliance and risk professionals. It interviewed senior leaders and senior compliance and risk executives at alternative fund manager firms which collectively manage around $132.25 billion assets under management working across the U.S., the U.K., Germany, Brazil, Singapore, Hong Kong, U.A.E, Turkey, Quatar, and Saudi Arabia.
More than nine out of 10 (92 percent) interviewed indicated they are already making use of AI in their organisations with more than half (55 percent) indicate they started using AI two years ago. Among the few who admit to not using AI around 71 percent plan to do so within six months.
The regulation and compliance professionals working in investment management identified transaction monitoring as the biggest area where AI can be applied while other key areas highlighted were staff filings, communication monitoring, and internal capital and liquidity monitoring.
World Economic Forum Managing Director Jeremy Jurgens, writing about AI after this year’s Davos meeting. said, “there’s a need for nuance beyond polarized narratives” in respect of the debate about AI.
The nuance for investment management is that AI is already contributing to the development of this highly regulated and controlled industry, but not necessarily in the areas one might first think of.

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