Why Asset Managers Should Leverage Generative AI In Portfolio Construction


According to the latest McKinsey Global Survey, Generative AI tools are set to revolutionize industries by 2023, and the investment industry is no exception. High-performing companies are already taking a broad view of what's needed to be successful, staying focused on value and rewiring their organizations to capture that value.

What is Generative AI?

Generative AI refers to a category of artificial intelligence that focuses on creating, generating, or producing new content or data, often in the form of text, images, audio, or other media. Unlike traditional AI systems that primarily perform tasks based on predefined rules or patterns, Generative AI models are capable of generating content autonomously, often by learning patterns and structures from large datasets.

The differences from Analytical AI and Generative AI

Here are some key take-aways from the McKinsey Survey:

Generative AI is on the rise

One-third of the survey participants have indicated that their organizations regularly employ Generative AI in at least one aspect of their business operations. This highlights the increasing significance and broad acceptance of this advanced technology in multiple industries, including asset management. As Gen AI continues to be more seamlessly integrated into everyday workflows, it is on track to bring about significant changes in processes, simplify and streamline decision-making, and improve the overall effectiveness of asset management. This transformation represents a shift toward leveraging Gen AI's capabilities to enhance efficiency, foster innovation, and achieve successful outcomes in the constantly evolving landscape of data-driven asset management.

Respondents across regions, industries, and seniority levels say they are already using generative AI tools.

Leaders are embracing Generative AI

Nearly one-quarter of surveyed C-suite executives say they are personally using Gen AI tools for work. This indicates that Gen AI is not just a topic for tech employees, but is becoming a focus for company leaders as well. Asset management firms are already considering how they can incorporate Gen AI tools into their own work, and how they can provide training and support to help their executives and employees use these tools effectively.

The opportunities for Institutional Investors

The investment industry stands as a sector poised to realize substantial advantages through the integration of Generative AI. This advanced technology presents a compelling opportunity to augment investors' decision-making capabilities and enhance risk management strategies. For instance, Generative AI has the capacity to conduct exhaustive analyses of vast datasets, unveiling complex patterns and trends that may elude human analysts. This empowers investors with deeper insights, enabling them to make more informed and forward-looking investment decisions while uncovering previously undiscovered opportunities.

Furthermore, Generative AI can play a pivotal role in strengthening risk management efforts. By identifying potential risks and forecasting their potential impact on investment portfolios, it provides investors with proactive risk mitigation tools. This, in turn, enhances the overall management of investment portfolios, mitigates the potential for losses, and promotes more resilient investment strategies. Generative AI represents a compelling resource for investors, offering the potential to refine decision-making and enhance risk management, ultimately elevating the prospects for success in the dynamic landscape of investment.

MDOTM Ltd is already taking advantage of this opportunity by integrating OpenAI's ChatGPT - a concrete example of Generative AI - into its AI platform Sphere. This integration empowers investment professionals to gain a comprehensive understanding of their portfolios; It offers them the ability to receive AI-generated commentaries that pinpoint strengths and weaknesses within their portfolios, highlight potential risks, and propose optimization strategies. This empowers proactive decision-making and performance enhancement. To learn more about the ChatGPT integration into Sphere, click here.

Gen AI is driving AI investments

40% of respondents say their organizations will increase their investment in AI overall because of advances in Gen AI. This suggests that this technology is driving broader investment in AI across a variety of industries. Asset management firms agree on the opportunities of investing in Gen AI to bolster their operational efficiency, deepen their understanding of the market dynamics, and secure a competitive edge while navigating the ever-evolving financial landscape.

Investing in AI pays off

AI high performers, where respondents say at least 20% of EBIT in 2022 was attributable to AI use, are going all in on Artificial Intelligence, both with Gen AI and more traditional AI capabilities. This suggests that companies that invest in AI are likely to see significant benefits, including increased profitability. Asset management firms are already investing in AI to improve their decision-making, boost Alpha Generation and provide better value to their clients.

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