Artificial intelligence – Feature
The impact of AI is more likely to be a shift in skill-sets rather than a reduction of staff. John Southall, LGIM
markets stewardship at Hermes, and her colleague Janet Wong, also stressed in a recent paper for Hermes Investment Management that there will still be need for a human element. “For AI to be useful to investors, analysts need to establish hypotheses on the possible relationships between data and the results obtained when they are used in investment analysis.” But fund analysts should still brace themselves for increased scrutiny.
investment funds who failed to outperform. Becket argues that throughout the same period, the number of professional fund investors has increased from more than 50 in the early 2000s to more than 5,000 last year. For Beckett, this means that we may have reached “peak human” and that investors should brace themselves for consolidation. Trends at GPIF might offer a taste of things to come. Despite being the world’s largest pension fund with assets worth more than £1trn, the fund only employs 139 members of staff, a sim- ilar amount to the UK’s largest retirement scheme USS, which has around £63bn in assets and employs 140. For John Southall, head of solutions research at LGIM, the growing importance of AI in fund analysis is more likely to require a different skill set, rather than an outright reduction of investors. He predicts that the ability to run suitable algorithms, to extract relevant information and sorting the signal from the noise will be of increasing importance. “An algorithm might flag a con- nection but it will often need human oversight to establish the risk of data-mining, the validity of an output on a forward-look- ing basis due to events, how the strategy would fit into the broader portfolio and suitable risk limits based on the plausi- bility of the strategy.” Christine Chow, director and head of Asia and global emerging
The way forward How could AI affect fund research over the next 10 years? For Morningstar’s Corr it is clear that while AI might not lead to a reduction of staff members at Morningstar, pension funds and other institutional investors will certainly consider re-sizing their research teams, certainly in the light of a growing focus on investment research costs under Mifid II. He predicts that fund research could evolve in a similar way as credit rating, with a handful of institutions dominating the ratings market. While Beckett is perhaps the most outspoken on the impact of AI on fund research, stating that “humans are ultimately very expensive fleshy robots,” he also predicts that AI could have a positive role to play in the fund landscape of the future. He sees opportunities for AI to influence the passive fund indus- try, for example, by shaping the way indices are being designed and creating more objective criteria for index creation. In the best-case scenario, integrating AI should lead to better outcomes for scheme members. “The time saved could be devoted to a much more enriched level of engagement with customers and communication will be a much bigger role of their job than it is now,” he predicts.
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