MUSCAT, JUNE 30 - Fifty-six per cent of institutional investors expect to increase the level of artificial intelligence (AI) integration with the investment process and 40 per cent expect to increase their budgets for AI according to a new Thomson Reuters and Greenwich Associates report.
Additionally, 70 per cent of respondents have either implemented alternative data or plan to in next 12 months as an additional input to their fundamental investment approach.
The study showcases recent changes in investment research and processes, as respondents’ insights identify three major themes driving the future of investment research: alternative data, artificial intelligence and changing relationships between institutional investors and the sell side.
In order to better understand how asset managers thought investment research would evolve over the next five to ten years, 30 CIOs, portfolio managers, and investment analysts across North America, Europe and Asia were interviewed. Other key findings from the report include:
n Only 17 per cent of firms are currently using AI such as machine learning and natural language processing when analysing data, news and content in their investment process.
n Web-scraped data, search trends, and expert networks data were the three most popular alternative data sets currently used.
n 71 per cent of senior asset management and hedge fund professionals believe competitive dynamics will lead to increased research unbundling, even in regions not covered by MiFID II.
n 50 per cent of respondents believe that the buy side will rely on the sell side less for research services. At the same time, 43 per cent expect to increase their reliance on proprietary in-house research further, and 39 per cent expect to increase their reliance on independent research providers.
“It seems clear that the investment research landscape will look very different in the next five to ten years” said Mahesh Narayan, global head of portfolio management and research at Thomson Reuters. “Investors will likely need to obtain more data and information to feed new AI and machine learning technology they invest in, including alternative data to identify new ways of finding alpha. We expect active portfolio managers will also be looking less to the sell-side for their research with a greater reliance on internal research and vendors to supply the information and tools they need.”
“Traditional investment research is under threat thanks to the explosion of new data and the technology,” said Richard Johnson, vice president, market structure and technology research at market intelligence and advisory firm Greenwich Associates.
“At the same time, regulations requiring the unbundling of research have put the spotlight on its value, creating a significant change in the investment research landscape. Financial information providers have an opportunity to assist the asset management industry in this transition by helping make sure portfolio managers and investment analysts have the necessary data and tools needed to evolve their business models so that they can take more control of their investment research process.”
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