Year of the Rat Outlook: Artificial intelligence and investing

For the Year of the Rat, AsianInvestor offers predictions on some key questions. Today: Will AI gain traction as an investment tool among Asia's asset owners in 2020?
Year of the Rat Outlook: Artificial intelligence and investing

Every Chinese New Year, AsianInvestor makes 10 predictions about developments that will affect global financial markets and the portfolios of Asian investors, especially asset owners.

Today we consider an increasingly hot topic – artificial intelligence – and its place in the investment industry.

Will AI gain traction as an investment tool among asset owners in Asia?

Answer: No 

Technology is fast disrupting the investment industry, as it is pretty much every other sector, whether by helping traders transact stocks more quickly and cheaply, speeding up data analysis or boosting the efficiency of back-office operations.

Many feel artificial intelligence is the next tech frontier for investors. That is, not just buying stakes in, say, machine learning (ML) companies, but actually incorporating AI into their portfolio management. This could mean, for instance, using ML to improve the effectiveness of algorithms used in investment processes or using AI techniques to process big data for investment insights.

But despite the buzz around such concepts, it is still very early days for most fund houses – let alone the average asset owner – to be using AI as an investment tool. According to a September report from the CFA Institute, relatively few investment professionals are exploiting AI and big data applications in their investment processes.

This situation is unlikely to change very quickly, and certainly not in the coming year, say experts AsianInvestor spoke to.

Asset owners in Asia and beyond are certainly considering the potential of AI and are keen to learn more. But they are far more likely to be investing in AI-related companies, using AI for non-investment functions, or employing fund managers that employ AI techniques, than actually incorporating such techniques in their investment processes.

There are pioneering exceptions, of course. Some institutions are ahead of the curve, with sustainable investing one area where AI is coming to the fore.

Dutch pension fund manager APG and Chinese insurance group Ping An, for instance, are employing AI to help them gather and analyse data to help achieve their environmental, social and governance (ESG) investment goals.

But in general, for asset owners in Asia, “AI is still at a conceptual stage and will need some years for enough historical back-testing and data lakes to be established for an AI tool to become viable”, said Justin Ong, asset and wealth management practice leader for Asia Pacific at consultancy PwC.

The widespread expectation is that AI will have a profound effect on the investment industry, but over time.

Ultimately, “[AI is] just the natural outgrowth of trying to do things more efficiently and cost-effectively”, said Rob Gillam, chief executive and chief investment officer of Alaska-based fund house McKinley Capital.

It’s like deciding one prefers using a calculator to an abacus for doing sums, he added, and who wouldn’t choose that?

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