Asset managers are increasingly turning to artificial intelligence to help provide research and due diligence on potential investments.
Managers have long used AI for sentiment analysis and to quickly find relevant information and patterns in quarterly earnings reports. But new, powerful and customizable platforms are emerging that screen new sources of investment data on potential companies, streamlining and speeding up the process of due diligence. Reports and investment summaries on investments can then be produced in a fraction of the time that a human could do the same task.
This in turn allows analysts and portfolio managers to reallocate their time to face-to-face client interaction or servicing existing relationships and investments. Several portfolio managers told II that they already do or intend to take advantage of the technology in this way.
Discussing how the new technology was infiltrating investment decisions in new ways, one portfolio manager who oversees a large team of analysts and global equity products told of how he had used an AI-driven research platform to generate information of a recent Treasury-bond related incident and how it might impact existing investments, something he said that would previously have taken a junior analyst at least two weeks to produce but instead took him “a matter of minutes” using an AI-driven research tool.
The source was quick to add that this simply freed up the junior analyst’s time to do “more important work.” But he also confirmed that the firm – a well-known asset manager – also had plans to hire fewer junior analysts in the year to come. There was, of course, no direct connection between these two trends, he added.
Bespoke Tools
Some asset managers have developed their own systems for this work. Schroders Capital has an internal system, known as the Generative AI Investment Analyst (GAiiA) platform, which everyone on the team involved in private equity and co- or direct investments has had access to initially and can interact with, and is being made available to every one involved in investment decision making at the firm.
The tool can help to create a draft investment memo. A human analyst will then verify and do additional analysis and finalize the document, which is ultimately submitted to the investment committee. The research is based on specific documents that are provided to the tool, meaning that the answers are based on an analysis of very specific content, which significantly reduces the risk of so-called “hallucinations.” Importantly, AI is instructed to create a document to always contain clickable sources that show where information was taken from to help with verification. Investment professionals can also use the tool to probe the original document and dive deeper into or verify certain aspects, or to update and regenerate the initial graphs it produced based on additional user input.
“The main purpose of this is about consistency, quality of the analysis and of the investment decision making,” said Nils Rode, CIO of Schroders Capital. “There is some productivity gain because these tools can do things that humans cannot. Our colleagues can now use these tools, but this is not at all about replacing people.”
On Monday, the firm also announced the introduction of a new tool that provides a virtual ‘investment committee agent’ to work alongside GAiiA. Using Schroders Capital’s historic investment data it is intended to contribute further insights into topics like sector dynamics, business model considerations and risk factors.
The skill level and experience of private equity investment professionals remains superior to what any AI can do today or in the future, he added, suggesting that this tool is simply an “accelerator” in a process that still needs human verification.
“There is still a lot to do be done for anybody in the investment team, but it's also similar to a promotion for anybody using the tool in the sense that they can focus on the more interesting things,” he said. “So that's why this has been fully embraced but is not replacing anybody.”
A firm with the size and resources of Schroders can develop its own artificial intelligence for its investors to use, but this is a luxury only afforded by those of a certain scale. Companies like martini.ai are forming that are seeking to bridge that gap. Specialists in corporate credit research, the offering has certain costs for upgraded services, but essentially offers free research and insights into companies’ credit risks. Rajiv Bhat, co-founder and CEO, said that the product helps analysts in this specific part of the industry that are “drowning doing the same kind of analysis over and over again,” doing financials and creating credit scores and reports. With the tool this is now possible incredibly quickly.
One function of martini.ai is the ability to input a portfolio and quickly assess how it would likely perform in the instance of a difficult scenario, an invasion or geopolitical event say, with expected losses and changes reported in real time.
"This not only helps analysts and portfolio managers do what they're doing much, much faster, but also gives them access to a whole new set of instruments that they were never able to access before,” he said.
