More than 90% of investment managers are embracing the power of artificial intelligence (AI) tools to enhance their investment strategies, according to a survey conducted by Mercer. The survey reveals that AI is being used to drive efficiencies, improve analysis, and identify new investment opportunities. What is interesting is that the use of AI in investment strategies extends beyond the traditional domain of quantitative strategies. The survey indicates that 54% of managers are currently using AI, while 37% plan to adopt it in the near future.
While the recent rise of ‘generative AI’ systems, like ChatGPT, has garnered attention, the investment industry has been exploring related technologies such as large-language models (LLMs), deep learning (DL), and natural language processing (NLP) for some time. The survey shows that 48% of managers are currently using machine learning (ML), while 44% are utilizing LLMs and NLP. Only 26% currently use generative AI, but the survey suggests that it is a focus for future implementation. Over half of the managers surveyed (51%) plan to adopt generative AI capabilities in the future, compared to 43% for LLMs and NLP, and 25% for ML.
It is important to note that AI is seen by investment managers not as a replacement for humans, but as a supportive tool that can enhance decision-making processes. The survey reveals that more than half of investment teams with integrated AI reported that AI analysis informs but does not determine the final investment decisions. Additionally, a significant majority of managers using or planning to adopt AI do not anticipate a decrease in the size of their teams in the next five years.
Despite some concerns around data quality, integration risks, and regulation, the survey found that investment managers using AI remain optimistic about its impact. In fact, they foresee AI contributing to an estimated US$14 trillion increase in the global economy, equivalent to a 9% boost in GDP, by 2030. The primary benefit managers anticipate from AI is enhanced productivity. However, they also expect to see an increase in market concentration, which can result from the herding behavior that sometimes accompanies inefficient markets.
Nick White, Mercer’s Global Strategic Investment Research Director, comments on the survey results and highlights a potential outcome of the widespread use of AI in investment strategies. He suggests that if everyone is using the same AI techniques, the potential competitive advantage and alpha generated from AI may diminish. It remains to be seen how investment managers will navigate this challenge and continue to seek an edge in the evolving landscape of AI-driven strategies.
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