Despite limited deployment of the technology, disruption is inevitable
The ‘AI is going to steal your job’ trope is applied to many industries and roles, but when it comes to alternative investments a new survey shows a significant expectation of disruption.
Conducted among general partners and limited partners globally by investment industry software firm Dynamo Software, more than half believe that AI is likely to displace industry jobs within the next five years.
However, the scale of job losses is not given and other parts of the research suggest deployment of AI in many areas of alts investment management is currently limited. For example, while more than half of respondents reporting the use of AI for predictive intelligence, 60% of GPs and LPs said their firm’s current AI strategy is “at the beginning stages of exploration.”
Almost three in ten respondents said that their firm is fully engaged with AI with 20% using it in some standard practices and 7% using it extensively. However, just 11% of those that are using AI for the prediction of market trends and investment outcomes are focusing it on specific markets with 6% saying it’s use is focused on specific use cases.
For those using AI to assist with investment decisions, 47% report improved performance although 30% said it has made no difference and none reported a negative impact.
“With nearly half of investors reporting that AI has improved their portfolio performance, it’s clear that artificial intelligence is emerging as an undeniably powerful tool in transforming the investment landscape," said Hank Boughner, CEO of Dynamo. "Though we’re only just beginning to scratch the surface of how these changes will unfold in the industry, there seems to be an openness by many to use AI to optimize their investment strategies.”
Use of AI differs between the two groups surveyed with GPs centred on portfolio monitoring (35%), portfolio valuation (32%), deal origination/analysis (29%), document management (29%), and security analysis (29%), while LPs are mostly using AI for automating data extraction and collection.
Overall, respondents to the survey feel that AI will be only moderately disruptive to traditional investment strategies, although three quarters expect it to be at least somewhat important for maintaining a competitive edge in the alts investment space.
AI funds
Asked about their investment in AI funds, 75% of LPs plan to increase their allocation to AI investments in the next 12 months, including cybersecurity (56%), predictive analytics (55%), and data centres (54%).
Autonomous vehicles and computer vision were of interest to just 14% of respondents.
When selecting funds that use AI in their decision making, LPs prioritize a proven track record and transparency followed by risk management (47%). However, just 27% of LPs said they factor expertise and experience into their decisions to invest in an AI-driven fund.
Most LPs plan to increase investment in AI-driven funds in the next six months (32%) or sooner (40%) with more than a third indicating that increase will be very significant.
