Asset managers and institutional investors are not alone in grappling with the daily escalation of challenges that artificial intelligence is posing. But they face a twin dilemma: assessing its value and impact on their businesses while also embracing it as the biggest investment opportunity – or threat – for a generation.
Views may differ on AI. At the extremes there are dystopian visions of the world where humans are subjugated by robots to those who dismiss it as another over-hyped technology. Almost certainly neither are right but what we do know is that none of us can ignore it and almost everyone has a view on it, writes Contributing Editor David Worsfold.
There is a parallel debate around the unprecedented levels of investment in AI platforms and the data centres that power them which lurches from over-hyped talk of an unending boom to gloomy forecast of a catastrophic bust.
Among the recent deluge of reports that has landed in my inbox are two that capture the extent of the challenges asset managers and institutional investors face.
Some new research from Clearwater Analytics has identified serious concerns among asset managers about the risks it introduces, from data governance to regulatory compliance.
Its GenAI and the Data Divide report, which polled insurance asset managers, hedge funds, private markets specialists and general asset managers, found that while AI offers clear efficiency and alpha-generation opportunities, it also introduces new vulnerabilities that inject caution and nervousness about the rush to adopt AI.
There is a growing gap between adoption and readiness. Nearly two-thirds (62%) are concerned they lack the skills and experience to use AI effectively, with 43% describing themselves as very concerned.
Another key finding swings the spotlight on organisational culture, something that is increasingly being identified as a major blockage across the financial sector. More than half of the respondents (52%) fear internal culture and resistance to change will slow adoption and readiness. Other experts have warned that this can lead to staff doing their own thing, often referred to as “shadow AI”.
Placing too many restrictions on how AI can be used has seen employees in some firms using AI tools outside the corporate environment, which can lead to client and proprietary data entering the public domain, creating a wide commercial and regulatory risk.
Souvik Das, CTO at Clearwater Analytics, said: “What struck me most in this research is how often the same root cause appears, no matter which risk we asked about. Underneath the concerns about skills, culture, governance, and compliance sits one common thread. Firms don’t yet fully trust the data feeding their AI.”
The investment dilemma
Assessing where to place your bets – and clients’ money – as the race to dominate the development of AII accelerates and intensifies is the other aspect of the AI revolution that no insurer investment team can ignore. At the heart of this race is the battle for leadership between the United States and China, says specialist fund manager Robocap.
Its recent study with senior executives at insurance asset managers, pension funds, family offices and wealth managers managing assets of US$513bn found this group believes the US will have to share overall AI global leadership with China within five years as the gap between the countries narrows.
Drilling down into the results reveals that 56% believe the US and China will be joint leaders in the global AI race, with just a third expecting the US to maintain its current market leading position. Only 2% believe China will overtake the US.
This is despite China already leading the AI race in specific areas such as volume of AI patents, the production of research talent and some physical AI applications in robotics, but the US is widely considered the current leader due to its dominance in private investment, high-end semiconductor design and the design of the world’s most powerful frontier models.
The research also produced a surprisingly long list of other countries that these major investors will be watching, including the UK, but also the UAE and Saudi Arabia as they have set out their stalls to become global AI hubs for research and data centres over the next five years. Around 60% believe they will be very successful.
Jonathan Cohen, Founder and CIO at Robocap, said: “The clear message for investors is that they have to think globally and look beyond the traditional powerhouse of the US and be open to opportunities worldwide.”
Keeping track of these twin impacts of AI will be the dominant topic of conversations across the sector for years to come.
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