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How AI is Transforming the Funds Industry

18th Jun 2024
Artificial intelligence (AI) continues to be a hot topic across industries – with good reason. But how is it reshaping the funds industry specifically, and what does that mean for fund managers?

Faced with growing demands from both investors and regulators – not to mention strong competition for capital and a tight employment market – fund managers are understandably attracted to the potential of AI to optimize their operations.

So, what are the benefits of AI for the funds industry, and what do firms need to be aware of before jumping onboard the AI revolution?

AI: The great disruptor

AI has been around for a long time, but its true potential has come into sharp focus with the commercialization of large language models (LLMs) and generative AI. While computers have been automating tasks with increasing efficiency for decades, LLMs expand that potential while being far more trainable and therefore capable and adaptable. AI can therefore now perform tasks that previously would have required the interpretative abilities of human intelligence.

What are the benefits of AI for the funds industry?

A key advantage of generative AI is its ability to interpret and synthesize new information across multiple data streams. That gives it the potential to unify a whole range of tasks most fund managers currently complete either with individual software tools or manually. At the same time, it can vastly improve accessibility and transparency.

From fund reporting to legal review, marketing to customer service, AI can complete tasks in a significantly more integrated way than traditional software, and vastly quicker than a human expert. This creates a hugely more efficient workflow, speeding up processes and reducing the need for oversight, while removing internal silos and minimizing knowledge loss through employee churn.

What specific tasks can fund managers use AI for?

AI already plays a pivotal role in transaction monitoring, thanks to its ability to analyze huge datasets and identify anomalies. But there are many other ways AI can be utilized across the industry:

  • Data management: Automated data aggregation and integration enables instant access to critical financial information, minimizing manual errors and speeding up data processing
  • Reporting: A much stronger ability to drill down into data rapidly and flexibly, slicing and dicing it on demand by parameters such as timeframe, asset type and jurisdiction
  • Client profiling: Building a comprehensive picture of clients’ financial needs, factoring in risk tolerance, investment goals, and market conditions – and creating uniquely tailored strategies
  • Customer experience: Providing an ‘intelligent’ interlocutor for client interactions that can learn rapidly from previous interactions; producing and delivering personalized content
  • Cybersecurity: Intelligent threat detection to safeguard client data and minimize the risk of financial fraud, while ensuring compliance with industry best practice and regulation
  • Forecasting: Powerful pattern recognition capabilities, meaning AI can learn from historical market data and use it to make ever more accurate predictions about future trends
  • Decision-making: Using the predictive and interpretive abilities of machine learning for complex tasks, including risk assessment, compliance monitoring and management, fraud detection and prevention, and even optimizing investment strategies
What challenges does AI present for the sector?

While the use of AI for the funds industry undoubtedly offers many benefits, it is not without risks:

Accuracy and reliability: In fund management, risks are there to be managed rather than just taken; the classic tech industry mantra to move fast and break things is at odds with fund management’s responsibility to look after and grow clients’ assets in a clearly compliant way. To be useful for fund managers, AI tools must therefore be both highly accurate and extremely reliable.

Change management: Like computing before it, AI has the potential to transform job roles, responsibilities, operating models, and the overall structure of businesses. To maximize the benefits while minimizing negative disruption, fund managers will need to have clear and robust strategies in place.

What governance is in place for the use of AI?

The funds industry is a rigorously regulated sector, and the SEC is already responding to the industry’s excitement around AI on multiple fronts. However, we believe the biggest risk around the adoption of AI is currently complacency.

While AI is an immensely powerful tool, it must in itself be wielded intelligently. It is vital to remember that AI is only as accurate as the data it ingests, and that the highly iterative processes used by machine learning can significantly amplify errors.

Left unaddressed, such issues have the potential to seriously undermine public confidence in AI. In an effort to counteract the problem, AI data validators and tools are becoming increasingly popular, acting as gatekeepers to ensure the quality and accuracy of AI-generated insights. However, in an industry as data-critical as the fund industry, robust oversight should include the ability to validate AI-generated data with human expertise.

How can JTC help?

The promise of AI is highly alluring. But with the funds industry technology evolving rapidly, keeping up with the pace of innovation is a challenge in itself. Partnering with JTC gives you access to our uniquely scalable technology platform that features built-in compliance, data security, automated reporting and enhanced transparency – all backed up with human expertise.

To find out more about we can help your business, get in touch with Todd directly.

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