CFA Institute Says Firms Must Act Today to Take Advantage of AI and Big Data Opportunities

CFA Institute, the global association of investment management professionals, today announced in its latest global report AI Pioneers in Investment Management that relatively few investment professionals are currently using AI (Artificial Intelligence) and big data applications in their investment processes. While investment management professionals surveyed for the report indicated their interest in AI and big data applications, progress in adopting the technology has been slow. In this report, CFA Institute examined issues related to the adoption of AI and big data in the investment process and proposed solutions to resolve them based on best industry practices.

“The investment community is keen to tap AI and big data’s potential to deliver on Fintech’s promise -- combining ‘Fin’ with ‘Tech’ driven solutions to take the industry to the next level,” said Larry Cao, senior director, Industry Research, CFA Institute. “We subscribe to the power of the “AI + HI” (Human Intelligence) model, and see that successful firms will be centered on T-shaped teams that combine investment expertise, innovation and technology applications across investment strategies or processes.”

According to the report, progress in deploying AI and big data has been slow despite management’s enthusiasm. A survey cited in the report shows a clear disconnect between AI plans and use. Based on the survey, only 10% of the portfolio managers who responded to the survey used AI/ ML techniques to improve their investment process in the past 12 months.

The report points out that the machine is only as intelligent as the data it learns from, and ML techniques are best suited to systematic strategies. Unstructured and alternative data are typically used more by discretionary managers. CFA Institute views niche and sector-specific data as more relevant for a fundamental analyst or portfolio manager focused on searching for alpha rather than a systematic manager. The effective use of such sector-specific data may prove an important opportunity for the besieged active management sector.

• Cost: Most investment firms massively underestimate the cost of applying AI and big data systematically in their business.
• Talent: Finding the necessary talent such as data scientists, AI applications’ developers and computer engineers is difficult.
• Management vision: Traditional investment industry management is often ill-prepared to set the strategic direction and make the organizational changes necessary to implement AI and data analytics in the investment process.
• Time: Investment of time remains one of the toughest challenges to overcome and exploring ways to increase alpha and integrating the new approaches into existing investment process take time.

• Organizations and investment professionals alike must acquire and constantly improve their skills to remain effective in the face of the technology disruption posed by AI and big data.
• Investment professionals in future should be prepared to work in integrated technology and investment teams (AI+HI). These collaborative investment teams will soon be the most valuable roles in the business.
• Investment teams in future will need to reorganize as “T-shaped teams” to succeed. Such teams will offer broad and deep knowledge with wider connections, understanding, perspectives and collective intelligence that rely on a collaborative culture and diversity of expertise in both investing and technology across the team.

“The way forward for investment professionals is to adapt and be conversant with the new technologies,” Cao explained. “Successful investment professionals in the future will be able to work efficiently with data scientists on their teams – while not needing to become data scientists themselves. It takes time to develop and adopt AI and big data applications, which makes it a compelling reason for all aspiring investment firms to act today.”

This report was prepared based on interviews conducted by CFA Institute with credible investment organizations that have actual and concrete cases of AI and big data technology applications deployed, and a CFA Institute member survey. Four major sectors of the investment industry were covered in the interviews: equities, debt, asset allocation, and hedge funds (alternatives), spanning the Americas, Asia-Pacific, and Europe.