Big Asset Managers Are Already Falling Behind in the AI Arms Race
A State Street report shows that even some of the largest investors lack the scale, resources, or foresight to leverage artificial intelligence.
Institutional investors say that artificial intelligence will be “transformational” and help them better manage and use data to create new business opportunities. But even the biggest investors don’t have the comprehensive and holistic data strategy needed to unlock that potential.
State Street surveyed 520 institutional investors (asset managers, asset owners, wealth managers, and insurers) around the world and few have their digital house in order. Two-thirds of them don’t have a holistic data strategy in place.
Medium-size firms, with between $100 billion and $500 billion in assets under management, are the least likely to have a good foundation for AI. Those institutions, “significantly lag” others, with only 20 percent having the needed data strategy, according to the State Street report. Meanwhile, 58 percent of larger and 40 percent of smaller institutions are in a similar position.
The firms that don’t make data management and usage a higher priority are in danger of falling further behind.
“The ability to support growth agendas, whether by offering new products, expanding into new asset classes and geographies, or launching new business lines all require a robust and flexible data foundation. Forward-thinking asset managers that re-evaluate their operating models and retire accumulated [dated] technology will be well-positioned to thrive in an environment of constant change,” John Plansky, head of State Street Alpha, said in the report.
To be fair, most institutions are making some effort to leverage AI (or at least that’s what the survey of them reflects). During the next two to five years, they expect usage to extend beyond current areas such as risk assessment, meeting ESG goals, and tracking investment performance.
Institutions expect non-investment areas, such as collateral management, to benefit from AI because the technology could make back-office data more accessible. Half the respondents rated the integration between front, back, and middle office systems as “average, below average or poor.” Other things expected to improve include insight into fund redemptions, transparency, collaboration between teams, and improved decision making.
Still, there are doubts about the impact AI will ultimately have. Some have characterized the refocus from crypto to AI startups as a mere “grift shift.” But AI is empowering portfolio managers, not replacing them. (Traditional asset managers and wealth managers are the most optimistic, with over 90 percent expecting to reap significant benefits from their data transformation, according to State Street.) Startups are already helping smaller asset managers use AI, Blackstone is sprinting ahead of peers and there are already other success stories, too.
More than half the institutions surveyed by State Street that have a holistic data strategy saw at least 10 percent improvement across metrics including revenue growth, investment returns, new client acquisition, market share growth, customer satisfaction, and customer retention.