U.S. Pensions, Endowments Are All Talk, No Action When It Comes to AI and Blockchain

Domestic allocators are far behind their international counterparts when it comes to artificial intelligence, blockchain and other advanced technologies, according to a new survey from Fidelity.

Illustration by Jeremy Leung / II

Illustration by Jeremy Leung / II

A majority of institutional investors polled in a recent survey say blockchain and other advanced computing techniques will reshape the asset management industry by 2025 — but many of them are not putting their money where their mouth is.

That’s according to Fidelity Investments’ annual survey of institutional investors, released Thursday. Although 73 percent of respondents think these technologies will play a big role in asset management over the next seven years, a big slice of allocators, particularly those in the U.S., are not doing anything to test and explore these technologies. What’s more, 77 percent of U.S. allocators are not currently testing or considering how artificial intelligence and advanced analytics can help their investment processes.

Outside the U.S., the picture is completely different. Eighty-eight percent of non-U.S. institutions are now putting these technologies through a serious evaluation and test, according to the report, entitled “Fidelity Global Institutional Investor Survey: The Future of Investment Management.” The study included responses from 905 institutional investors in 25 countries, with $29 trillion in combined investable assets. Public and private pensions each represented about one-quarter of respondents, with the remainder including endowments, insurance companies, and sovereign wealth funds.

“It was surprising to learn how many institutions are already embracing and testing these technologies, and how many are not,” said Judy Marlinski, a 33-year veteran of Fidelity and president of Fidelity Institutional Asset Management.

“The power of AI is in continual development. You transform investment capabilities through constant testing. We wanted to learn whether institutions are devoting enough time and space to explore this,” she added. “It’s not one-and-done. It’s testing and learning, and that will become an important part of an institutional investor’s thinking.”

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Big investors’ inertia when it comes to technology is in stark contrast to how important many believe these advancements will be to the future of the industry. Sixty-two percent of institutions surveyed expect that trading algorithms and quantitative models will make markets more efficient, and nearly 80 percent think blockchain and similar technologies will fundamentally change the industry.

When it comes to technology companies getting into asset management, 75 percent of respondents to the survey think it is likely a company like Google or Facebook will enter the industry and set off a spate of mergers and acquisitions as they compete for business.

The survey also found that 69 percent of big investors believe they will use AI for asset allocation, 67 percent expect to employ the technologies for performance and risk evaluations, and 39 percent think they will use AI to build custom portfolios.

Humans will have a role in the future of asset management, but they’ll be working with robots, respondents said. More than half of institutional investors think technology will replace some asset management jobs.

In what may be wishful thinking, 60 percent of respondents think AI will help humans with their jobs, rather than take their jobs entirely.

“A big takeaway for us was the role of the human connection,” said Marlinski. Fifty-three percent of institutional investors think technology could replace traditional investment roles, but 60 percent said AI will augment the roles.

“Humans will provide an important role in interpretation. The technology doesn’t stand on its own,” she said.

Investors may ultimately rely on new investment processes for alpha, or excess risk-adjusted returns. Fidelity found that institutions may find these new alpha generators because they will be better aligned with faster, data-driven strategies. For example, 70 percent of respondents believe advanced technologies will lead to the discovery of new assets such as cryptocurrencies.

Although small, a full 10 percent of respondents to the survey says the industry will be the same in 2025 as it is today. No matter the evidence, there are still believers in the status quo.