The future of asset management with generative AI

Recent reports, such as the KPMG 2024 Asset Management CEO Outlook and the joint analysis by Oliver Wyman and Morgan Stanley, emphasize the strategic significance of generative AI in the industry. Its ability to transform processes, enhance decision-making, and deliver more personalized services is reshaping the standards in asset management.

Generative AI has revolutionized asset management by enabling the simulation of thousands of investment scenarios, allowing managers to design portfolios that align with each client’s risk profile and time horizon. It has also expanded the use of Alternative Data, enriching analysis and offering a more comprehensive market view.

This technology detects patterns in vast amounts of historical and current data, facilitating trend prediction and risk assessment. According to MAPFRE AM Deputy General Manager Patrick Nielsen, AI will “digitalize the entire investment process, from market interventions and the preparatory work involved to investment monitoring, including trade confirmation and settlement.”

AI-driven automation generates significant economies of scale. While initial investment costs may be high, the reduction in human error, greater agility in analysis, and increased efficiency in internal processes make it cost-effective in the medium term. This enables asset managers to seize more investment opportunities without compromising decision quality.

The KPMG report reveals that 75% of asset manager CEOs view generative AI as a top investment priority. This underscores how asset managers are leveraging the technology to transform operations, enhance analytical capabilities, and strengthen client relationships.

The analysis from Oliver Wyman and Morgan Stanley highlights several key areas where generative AI is driving change:

– Faster, more accurate decision-making: AI algorithms process data in real-time, enabling swift identification of opportunities and risks. This is especially crucial in volatile markets, where speed and accuracy are critical.

– Personalized client relationships: generative AI uses tools such as natural language processing and recommendation systems to provide services tailored to each investor’s needs. This enables the creation of optimized portfolios based on financial goals and risk profiles.

– Automation of internal processes: tasks like generating financial reports, risk management, and document handling have become faster and more accurate. The resulting operational efficiency allows managers to focus on high-impact strategic activities.

– Advanced reasoning: technologies like Chain of Thought (which enables AI to explain its step-by-step reasoning) enhance AI systems' ability to analyze complex problems using logical thought processes. This improves the understanding of asset interrelationships and leads to more accurate projections.

– Integration of alternative data: the use of unconventional sources, such as satellite data or digital consumption patterns, enriches financial analysis. Generative AI processes this data quickly and produces innovative insights that provide a competitive edge.

These applications improve asset managers’ agility and precision, enabling them to craft strategies that better address market demands and investor needs. While challenges such as staff training and technological integration persist, firms that invest in overcoming these obstacles will be well-positioned to lead the industry.

MAPFRE AM is an example of how generative AI can be integrated into a traditional asset management firm to enhance efficiency and competitiveness.

Patrick Nielsen explains that AI plays a role at various stages of MAPFRE’s investment process. According to Nielsen: “Our investment process involves several stages, and AI, in its broadest sense, is incorporated into many of them. This is a journey we’ve been on for several years, and we aim to accelerate it as the results continue to impress us. We began by using advanced statistical tools to tackle questions like, ‘How do we categorize thousands of assets into five major groups’ ‘How do we explain an asset’s performance based on factors like growth, inflation, and interest rates?’ And ‘How do we understand the interrelationships between the performance of different assets?’”

Nielsen also emphasizes the use of advanced techniques such as machine learning, including supervised methods like clustering, classification, and random forest, which have been essential in developing more sophisticated models. He explains, “These techniques led us to adopt machine learning methods (clustering, classification, regression, random forest, etc.) initially in a supervised way. Over time, this allowed us to build unsupervised or reinforcement models, which often deliver better results, though they tend to be less interpretable. When comparing them to more traditional machine learning models, we always have something to rely on, as it remains crucial to maintain human judgment throughout the process.”

In areas such as report generation and risk management, MAPFRE is also starting to implement generative AI, marking significant progress toward the full automation of its operations.

The integration of generative AI offers several advantages for asset management:

– Extreme personalization: asset managers can create portfolios that are precisely tailored to each client’s goals and characteristics.
– Agility in volatile markets: the speed of data analysis enables swift, effective responses to market fluctuations.
– Innovative insights: non-traditional data sources enrich analysis, providing a more comprehensive view of the market.

The challenges, however, are substantial: asset managers must ensure ethical use of data, invest in specialized training, and effectively integrate these technologies into existing systems. While AI enhances analytical accuracy, human judgment remains essential for interpreting results and addressing qualitative factors.

Ultimately, generative AI is transforming asset management, from operational efficiency to client relationships. Managers like MAPFRE AM are showcasing how this technology can be successfully integrated to achieve greater accuracy and personalization.

At a time when investors demand rapid, customized solutions, generative AI is emerging as an indispensable strategic tool. According to the KPMG report, managers that prioritize this technology will be better equipped to lead in the new digital era.

RELATED ARTICLES: