AI adoption exposes asset managers’ data challenges

A global study by Clearwater Analytics found that 83% of 250 senior fund-management executives across the US, Europe and Asia-Pacific said AI had improved investment strategies and portfolio construction.

The comprehensive study, The Crowded Trade, commissioned by Clearwater Analytics, revealed that firms using AI most heavily were also the ones most likely to encounter unreliable data. The more decisions a firm runs through AI, the more it depends on the data behind those decisions and the faster it identifies where that data falls short.

Asset managers surveyed are particularly positive about generative AI's power to reduce portfolio volatility and speed up rebalancing cycles, both high-stakes, high-frequency decisions now running increasingly on AI. Nearly three-quarters (74%) expect generative AI to maintain its current 15% to 20% cut in portfolio volatility over the next three years, with 16% expecting it to cut volatility further still.

On rebalancing, which generative AI has already sped up by roughly 30%, 28% expect that pace to hold and three in five (60%) expect it to reach 30% to 35%. The more of this work moves to AI, the more a firm's results depend on the data feeding it.

Success elsewhere in the business follows the same pattern. Half of asset managers say they have been extremely successful in deploying AI and machine learning company operations, with a further 23% say it has been successfully implemented. In compliance and regulation, 39% say AI has been extremely successful and 41% successful. Across the board, AI is doing what firms hoped it would, which is exactly why the data underneath it is starting to matter more, not less.

Souvik Das, CTO at Clearwater Analytics, said: "Most of the data problems firms run into come from the same root cause: too many systems, each with its own version of the truth, constantly being reconciled against each other. We are building toward a different model, a single, immutable record of every investment activity, reconciled continuously rather than at the end of the day, and consistent across every asset class and every function, front office to back office. The firms that get the most out of AI will be the ones running on that kind of foundation, because an agent or a model is only as good as the record it's reading from."

 Re-disseminated by Wealth and Society