From Research Assistant to Portfolio Manager: AI Takes on a Bigger Role

Who’s driving here?

Artificial intelligence is taking on a growing role in how asset managers research, test, rebalance and even design investment strategies. While some firms use the technology to support human decision-making, others are handing it the reins. Portfolio managers aren’t necessarily becoming obsolete, and those who learn to use AI effectively may even gain an edge.

“We could build … the best AI systems, but if our folks don’t know how to leverage and use them well, or don’t trust what they’re seeing, then it won’t be productive,” Charlie Flanagan, chief AI officer at Balyasny Asset Management, said during a panel discussion at a Bloomberg event last week.

In the Driver’s Seat

This summer, Ai Funds launched its first ETF, the High Conviction US Equity AI-Managed ETF (HIAI), which is autonomously managed by the firm’s in-house agent, BAILA, which stands for Bayesian AI Learning Algorithm. “[The] AI isn’t helping a portfolio manager make decisions. It makes them,” company CEO Tal Schwartz said. “Most of what the industry calls ‘AI-powered’ is really AI-assisted: The AI suggests and a human decides.”

It’s an entirely new investment category, Schwartz said. Active management offers the potential to beat the market, but results vary widely, while passive indexing offers low costs but no alpha. “AI-managed investing will follow the path passive investing took, from a contrarian idea to a standard option in every portfolio,” Schwartz told Advisor Upside.

AI adoption across the industry is already growing, even if most firms haven’t handed over investment decisions entirely:

• Globally, 55% of asset managers say AI is integrated in at least one of their strategy’s investment processes, according to a Mercer survey conducted in February.
• Plus, 91% of respondents said at the time that they planned to increase their use of AI in the 12 months ahead.

Learner’s Permit: Not every asset manager is ready to let AI take the wheel. Don Cody, founder of Global Macro Asset Management, said he uses AI for research, stress testing, developing client materials and comparing funds. Tasks that once required a team of analysts can now be completed by a small firm in an afternoon, he told Advisor Upside.

“It changes research hours spent, not investment judgment,” he said. “AI can create a hundred strategies in a day, but it can’t tell you which one survives a regime change nobody has seen yet. … It’s going to be a while before we turn over the keys completely for product design, development and management.”