Asset Management

Clive Eggers
Head – Multi Managed Portfolios

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The rise of Artificial Intelligence and its impact on Investment Management 

As part of GTC Asset Management’s ongoing research into investment strategies, trends, and managers, we have been following developments in the rise of ‘artificial intelligence’ (AI) and particularly its use in the investment management arena. 

The concept of AI is not new, indeed one of the most significant research papers, credited with significantly advancing work in this field dates back almost 70 years! (* ‘A Proposal for the Dartmouth Summer Research project on Artificial Intelligence’, J McCarthy, ML Minsky, N Rochester, CE Shannon, 31 August 1955). The recent attention has been driven by the amazing intuitive interactions between users and the latest iteration of these systems (e.g., ChatGPT), particularly in the areas of language and art. 

We recently polled twelve of our top-rated asset managers seeking to understand whether they too took advantage of AI technologies. We asked these managers three questions and their responses provided interesting reading.  They confirmed that AI technology, in at least some form, is already impacting the investment management world in South Africa. We asked the following questions: 

Has your firm made any changes in the past 12 months to incorporate this technology or related concepts, in your investment processes?  If yes, please provide an example.

Eight out of the twelve managers confirmed they have implemented AI technology in the past 12 months.  The biggest areas of implementation were those in support of the investment management processes, specifically the processing of information and automation of repetitive tasks. 

Some noteworthy comments included:

“One specific area where we have experimented with AI technologies is in our note-taking and summary preparation.  We are experimenting with Large Language Models (LLMs) like GPT for these tasks.  LLMs help us generate summaries and notes quickly, enabling our analysts to focus more on strategic tasks and decision-making, rather than administrative duties.”

“For example, when researching some of the more technical aspects…, we have found that ChatGPT can add significant value…  It has also been valuable in providing overviews of industries and companies when initiating research on various industries.”

What is the probability of your firm introducing this technology or related concepts into your investment processes in the next 12 months? (a. zero, b. less than 50%, c. greater than 50% but less than 100%, d. 100% – in the process of implementing or already implemented).

Responses were mixed to this question between managers, with most answers varying between b. and d.  Two managers declined to make a forecast.

While those managers that weren’t planning to make changes over the coming year recognised the potential benefits of the technology to some part of their investment process, they did advise caution, particularly siting legal considerations:

 “… they also raise several legal, commercial, and reputational risks in areas such as privacy, consumer protection, and contractual obligations.”

Please provide a summary of your investment firm’s view on these developments and their use within your investment process?

All managers were unsurprisingly positive on developments within AI regardless of their current degree of usage, quoting the ability of AI to significantly increase efficiencies.  This was well summarised by one manager:

“… the use of AI and machine learning techniques, very much like other quantitative techniques that we have been using over the last two-plus decades will continue to be powerful tools – helping us make good decisions, and significantly raising the bar.  We think that not using these tools might become a significant competitive disadvantage over the medium term.”

So, understanding our asset managers’ stance on AI and machine learning, what is GTC Asset Management’s own stance on this?  We’re cautiously optimistic – these developments hold real promise in enhancing the efficiencies of our own investment processes as well as potentially providing new possibilities in investment strategies. 

While we are excited at the possibilities we are as ever vigilant with our client’s investments and will only integrate the technologies available once they have passed muster with our rigorous due diligence processes which evaluate the potential benefits against risks.  Given the nascent nature of these developments, more research and work is and will be required before integration.