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Why fund managers need to adapt skills for competitive edge with AI

By Rhea Nath
5 minute read

As the industry wrestles with artificial intelligence, including the emerging trend of “AI washing”, questions have arisen about the extent of AI’s impact on the investment management landscape.

The rising popularity of AI has sparked a number of discussions in the last 18 months over its implementation in everyday life, but perhaps the biggest theme to come to the forefront has been the extent to which the technology could disrupt human work.

According to Australian-based quantitative investor RQI Investors, everyone will be impacted, but the full extent of this impact on various professions, including investment management, remains unknown.

“AI is not magic. It is a tool, and it’s a very clever tool, very clever technology, that can make repetitive tasks much more efficiently performed or it can learn to do smaller functions that require less creative input,” David Walsh, head of investment at RQI Investors, told InvestorDaily.

In a recent paper on the threat or promise of AI in investing, Walsh explored a number of ways in which AI could disrupt the industry, including stock selection and trading, automation through coding and report writing, pattern recognition, and the act of summarising unstructured data.

While AI could be useful in some areas of the job, especially in performing mundane, time-consuming tasks, its abilities, according to Walsh, should be viewed as a supplement to a manager’s day-to-day activities.

“The creative component of it, the ideas, the insight used in investment management, won’t come from an AI, and it shouldn’t.

“What it does, one of the real leverage points here, particularly in investment management, is that it frees up your time as an investment manager to think about what matters,” Walsh explained.

Contrary to discussions about AI’s risk to white-collar jobs, he believes AI cannot replace or threaten investment managers but rather emphasises the need for creativity and talent from these professionals. In fact, Walsh believes new entrants and those already in the industry will likely need to enhance their skills to stay in the game.

“I guess the question is, how much original insight does an active manager have? You know the old story of when the tide goes out, you realise who’s been swimming naked – it’s a bit like that.

“You’ll have the situation when you understand there’s going to be a benefit to the insights, and those who have the insight, the good ideas, and investment acumen [and] the talent will matter more in an environment with AI than before,” he stated.

Despite these beliefs, he stopped short of suggesting AI could “transform” the industry but admitted that it will be a disrupter to the jobs market, including to the wealth management industry.

“The talent pool will shrink, but I think overall, the efficiency of getting ideas in, and the way in which we capture them will improve as well,” Walsh said, adding that the industry won’t pivot by 90 degrees.

But ultimately, he said, AI is “not magic, it’s just clever technology”.

“If you’re on top of the technology and you can use it in your processes, it frees you up to do things which humans are better at.”

The rising trend of AI washing

Last month, the US Securities and Exchange Commission (SEC) pulled up two investment advisers over allegedly false and misleading statements on the firms’ purported use of artificial intelligence in what marked the first case of “AI washing”.

Issuing $400,000 in total civil penalties, the US regulator alleged the firms made misleading claims on their websites, social media, and other external communications, including one falsely claiming to be the “first regulated AI financial adviser”.

Walsh, like many other industry commentators, noted that it was “trendy” to be on the AI bandwagon and there could be more such cases that crop up.

“I think a lot of people will be confused about what AI is and what it isn’t,” he said.

“It’s very much a grey area. I’m very much of the opinion that AI is a tool to use, and you need to be very explicit about how you’re using that tool to approach the insight or efficiency you’re trying to get at, so I think there will be more cases of [AI washing].

“But being very careful about what it is in your mind, what it isn’t, and being very specific about where you use it and don’t use it, that is pretty important.”

Previously, Piers Bolger, chief investment officer of Infinity Capital Solutions at Viridian Financial Group, also emphasised the important distinction between the adoption of AI and the pursuit of business efficiency.

“If a business says, ‘We’re using AI’, and it’s really around business efficiency because they’ve reduced processes or have a more efficient way that they’re using a technology footprint – that’s not AI [in this context],” he told InvestorDaily.

“People say they’re using AI, but really, they’re just using technology in a more efficient manner, as more businesses should look to do.”

Recent discussions have seen “AI washing” being touted as the next big regulatory trend, following buzzwords like “greenwashing” and the lesser-used “bluewashing”.

Bolger observed: “[AI washing] is a nice buzzword that the industry is wrapping its head around at the moment, a little like ESG was 12–18 months ago in the context of how to talk about it.”