Rebooting the global asset management industry

Rebooting the global asset management industry 33 Some early movers have already started to blend ingenuity with GenAI. Such ‘augmented intelligence’ combines the best of both while compensating for each other ’s weaknesses (see Insights). Three other front office activities are also singled out in our survey. The first one is risk management and compliance (49%). The regulatory overdrive coming in the wake of the 2008 global financial crisis has involved introducing systems and controls across the value chain in most fund jurisdictions. AI and GenAI are seen as tracking their introductions and implementation in real time, flagging breaches as and when they arise, and proactively flagging anomalies. The third area is the creation of personalized portfolios for digitally savvy clients at scale (46%). The fourth area is trade execution (39%) where speed and agility are vital in exploiting bid-ask spreads. The fifth area unlocks the access of private markets via tokenization (36%). Moving on to the middle office, the key impacts will be felt in a number of areas. The principal one is the IT responsible for building a tech architecture for the AI and GenAI use cases across the business (54%). Sales and marketing is another area likely to be impacted (51%), as are two activities related to personalization of risk: personalized client experience at scale (50%) and D2C platforms (44%). Finally, in the back office, all operations are information intensive in the extreme and are highly amenable to AI and GenAI (62%), as are business management and its diversity of overhead functional areas, such as finance and HR (37%). Overall, at least a third of our survey respondents expect disruption before long across all the listed activities in Figure 3.1. Largest among them are already investing in cloud-based systems and GenAI to power front, middle and back office and outsource routine functions with a singular focus on accelerating digitalization, generating alpha, and automating routine operations. Such ‘augmented intelligence’ combines the best of both while compensating for each other’s weaknesses. Insights The transformative power of disruptive technology in alpha generation Disruptive tools like AI, blockchain, Big Data and cloud computing continue to serve as vital tools to improve operational efficiency, client experience and investment performance. For us, the biggest gain so far has been in alpha generation. We were one of the early movers with AI in our portfolio of factor investing: a systematic rules- based strategy that allocates assets to traditional risk factors such as value, size, low volatility and momentum. Although rules-based, it required human input on which factors to select, what weights to accord them and when to dial them up or down. GenAI has now served to turn this discrete activity into a dynamic one, as new real time data – structured or unstructured – uncovers hidden patterns and permits rapid investment choices. Our portfolio managers now mostly provide an oversight so as to filter the signal from the noise to raise the persistency of alpha by seizing fleeting market opportunities. We are building on this success by tackling a long prevailing problemwith historical data, where each data point is a realized outcome among countless possibilities. As a result, machine-learning models trained on them tend to ‘overfit’ to specific historical conditions and ignore the counterfactuals that might have been just as likely. Our latest use case, just rolled out, prioritizes the creation of ‘synthetic data’ that represent alternative scenarios that might have occurred, had events played out differently. Such data provides better actionable insights when creating scenarios of different future market conditions. These are essential, as the old risk models based on past price behaviors are less relevant in this age of heightened volatility. A Dutch asset manager “Proprietary data are essential to create a robust AI moat. Unique products and services will only arise from unique data.” GenAI is proving useful in creating simpler and user-friendly products and interfaces to deliver customization and personalization.” Interview Quotes