With the global AI market predicted to reach $126 billion in 2025, alternative investment firms are shifting their attention towards artificial intelligence to help strengthen their operations.
- 50% of attendants are in the early stages of exploring AI possibilities.
- 33% have implemented AI in some areas,
- 13% are yet to start ,
- And only 4% have fully integrated AI into their business operations already.
So is AI the future of growth in the alternative investment sector? Or will a reluctance to embrace digital transformation keep AI from finding its feet?
AI benefits for alternative investment.
In a report published by the Alternative Investment Management Association (AIMA) it was highlighted that the main advantages of AI are time and cost savings, by automating administrative tasks, enhancing marketing communications, and supporting coding efforts.
Artificial intelligence opens up new opportunities for alternative investment firms that reach far beyond efficiency and cost reduction; Deloitte describes them as the “four pillars for transformation”, which are:
- Generating alpha — generating additional growth by unleashing AI on alternative data sets.
- Enhancing operational efficiency — transforming traditional cost centres into AI-powered “as a service” offerings.
- Improving product and content distribution — generating new insights through AI and the personalisation of the customer experience.
- Managing risk — using AI to augment data analysis, predictive analytics, and essential compliance and risk management functions.
Challenges to AI adoption in alternative investment.
When the survey turned to challenges, a whopping 69% of business leaders, in the alternative investment sector, expressed data privacy and security as their chief concern. The remainder worried about their lack of understanding and difficulties in quantifying their return on investment. None of the respondents said integration with existing systems was a primary challenge.
AI systems and their creators are working hard to make sure their offerings are seamless and efficient. After all, the point of AI is to make our lives easier. So it’s no surprise that they link with the large majority of existing systems. For example, Microsoft offer Copilot, and it’s part of every Office365 application.
The benefits are potentially huge, but what about the risks. With AI integrated into all your systems, concerns over data security and technical knowledge are bound to be forefront of your mind. So how does the industry begin to adopt AI and start seeing the growth it offers?
AI adoption in the alternative investment sector.
With leading analysts such as KPMG championing the case for digital transformation in alternative investments, the sector is on the verge of a technological revolution. Right now, AI is worth $2.6 billion to the asset management sector and is forecast to expand at a compound annual growth rate of 24.5% between 2023 to 2030. Meanwhile, alternative investment companies are finding more and more ways to apply AI technology, providing significant enhancements to:
- Trading, via automated data aggregation.
- Deal sourcing.
- Processes for reviewing investment and legal documents.
- Generating reports.
- Recruitment activities, via highly targeted job descriptions.
- CRM communications, via intelligent grouping of conversations.
In short, artificial intelligence is leading innovation in financial services, by unlocking insights, streamlining processes, enhancing fraud protection, and improving cyber security.
These findings were echoed by survey participants. 74% said that AI should provide useful insights, but final decisions should be made by humans, while 26% saw a collaborative future where AI makes decisions in certain areas with human oversight.
So how many of these businesses are actively adopting AI? – 93%.
Of that, half of all respondents are actively using AI for tasks such as development and coding, and a further 43% are focused on productivity enhancements, from simple meeting summaries to more complex workflow optimisation.
The last 7% are venturing into optimising their middle and back-office operations. For example, report generation, HR processes and document reviews.
Somewhat surprisingly, none of the participants were currently exploring AI as a predictive analytics tool for trading, preferring to rely on their own methods of analysing the market. Expect to see more of this though, as AI finds its place in the industry.
What does the future hold for AI in alternative
investment?
AI is revolutionising all industries; opening up new opportunities and spawning the development of products previously unheard of. And it’s no different in alternative investment.
Business functions primed for AI adoption include IT services, legal and compliance operations, and investor relations. AIMA’s report reveals that 20% of larger hedge fund managers expect substantial change to portfolio management within the next two years.
But what about the risks and challenges?
Well the AIMA report found that just 10% of hedge fund managers said they’d received any training in AI. While a third believed it would be important for new hires to receive this training.
Digital transformation is coming and AI will be leading the way. While it might not be common place now, leaders in the industry are already pushing for their teams to be able to use, trust and leverage AI.
How can you implement AI for your alternative
investment firm?
AI is here to stay. It’s an incredibly powerful tool, whether you decide to go all in and use it as a predictive trading tool, or whether it’s assigned to administrative tasks that free up your staff for more important roles. To start using AI, or to improve on how you already use AI, there’s a few key things to do.
- Assess the benefits – What do you want to get from AI?
- Address the risks – Do you have adequate security? Do you need staff training?
- Find the right support – Expertise and experience are invaluable.
- Find a partner who can help up front, and be there moving forward.
As experts in IT systems, and specialists in the alternative investment sector, our goal is to empower clients with technology to meet and exceed their business goals.
We’d love to help you embrace AI and drive your business forward so contact us today to see how we can help.
