Institutional Asset Manager Newsletter 03.11.23

AI tools to dominate investment management

The world’s first AI Safety Summit is taking place in Bletchley Park this week, bringing big names from the world of tech together with policymakers to establish what Elon Musk describes as "an independent referee, that can observe what leading AI companies are doing and at least sound the alarm if they have concerns".
While predictions of an ‘existential threat’ from AI are plentiful, they remain light on detail, and the Summit could provide investors with at least some guidance on how to analyse the risks from the tech companies to which they allocate.
A paper from the Centre of Policy Studies looking at the risks and opportunities from regulating AI makes clear that "while some companies are making praiseworthy efforts on AI alignment [making sure technology continues to work for humans irrespective of its power], there is a consensus that it is not receiving as much investment as AI development".
In the absence of an independent third-party referee to govern AI - which will undoubtedly take time to get off the ground given the number of interested voices in the mix – investors will need to keep a close eye on their tech companies and ensure boards are making AI alignment a priority.
Not to be outdone by the Summit, this week we bring you news that AI is firmly embedded in the institutional asset management world.
The Invesco Global Systematic Investing Study reveals a widespread expectation that AI tools will transform portfolio management in the years to come. The majority or respondents to the research (62 per cent) anticipate that, within a decade, AI will be as important as traditional investment analysis while 13 per cent expect it to become more important.
Systematic investors are already reliant on AI with almost half (46 per cent) using AI to identify patterns in market behaviour, and more than a third (38 per cent) using it for portfolio allocations and risk management.
Moving away from tech, we bring you the Preqin Hedge Funds Q3 2023 report which shows a downturn in performance following a strong July.
In terms of performance, Preqin’s total hedge fund index ended Q3 2023 at –0.12 per cent. Still, this hasn’t put investors off allocating more capital to hedge funds.
Charles McGrath, AVP Research Insights at Preqin, says: "Hedge funds are a key asset class to mute market volatility. Investors have highlighted markets uncertainty, along with shifting inflation and interest rates, as potential challenges. When citing these concerns, the same group pointed to hedge funds’ role in portfolios to guard against volatility."
Gill Wadsworth, Editor
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