AI to help inform investment decisions in next 5-10 years: report

56 percent of institutional investors expect to increase the level of artificial intelligence (AI) integration with the investment process and 40 percent expect to increase their budgets for AI according to a new Thomson Reuters and Greenwich Associates report.

Additionally, 70 percent of respondents have either implemented alternative data or plan to in next 12 months as an additional input to their fundamental investment approach.

The study showcases recent changes in investment research and processes, as respondents’ insights identify three major themes driving the future of investment research: alternative data, artificial intelligence and changing relationships between institutional investors and the sell side.

In order to better understand how asset managers thought investment research would evolve over the next five to ten years, 30 CIOs, portfolio managers, and investment analysts across North America, Europe, and Asia were interviewed. Other key findings from the report include:

•  Only 17 percent of firms are currently using AI such as machine learning and natural language processing when analyzing data, news, and content in their investment process.
•  Web-scraped data, search trends, and expert networks data were the three most popular alternative data sets currently used.
•  71 percent of senior asset management and hedge fund professionals believe competitive dynamics will lead to increased research unbundling, even in regions not covered by MiFID II.
•  50 percent of respondents believe that the buy side will rely on the sell side less for research services. At the same time, 43 percent expect to increase their reliance on proprietary in-house research further, and 39 percent expect to increase their reliance on independent research providers.

“It seems clear that the investment research landscape will look very different in the next five to ten years” said Mahesh Narayan, global head of portfolio management and research at Thomson Reuters. “Investors will likely need to obtain more data and information to feed new AI and machine learning technology they invest in, including alternative data to identify new ways of finding alpha. We expect active portfolio managers will also be looking less to the sell-side for their research with a greater reliance on internal research and vendors to supply the information and tools they need.”

“Traditional investment research is under threat thanks to the explosion of new data and the technology.” said Richard Johnson, vice president, market structure and technology research at market intelligence and advisory firm Greenwich Associates. “At the same time, regulations requiring the unbundling of research have put the spotlight on its value, creating a significant change in the investment research landscape. Financial information providers have an opportunity to assist the asset management industry in this transition by helping make sure portfolio managers and investment analysts have the necessary data and tools needed to evolve their business models so that they can take more control of their investment research process.”

Thomson Reuters offers a portfolio of investment research products, data and services for both the buy-side and sell-side. With Thomson Reuters Eikon, buy-side firms can upload and integrate their internal research with external research so their portfolio managers can easily access it all in one place. Earlier this year, Thomson Reuters announced the launch of the Investment Research Marketplace on Eikon, a solution that enables buy-side firms to purchase research collections from a wide range of sell-side and third-party contributors without needing a broking relationship. This is in addition to a series of Eikon integrations and enhancements to further align with research unbundling requirements of MiFID II.

Read and download the complete Future of Investment Research report here.