As the investment management landscape evolves, a remarkable 54% of firms now report incorporating artificial intelligence (AI) into their strategies, according to various industry surveys. But before we get too excited about this promising statistic, there’s a crucial issue lurking beneath the surface—a significant skills gap in AI proficiency among investment professionals. This gap is set to shape the future of investment management, determining which firms will thrive and which will struggle.
Understanding AI’s Role in the Investment Landscape
In my Deutsche Bank experience, I witnessed firsthand how financial crises, particularly the one in 2008, drove the industry to seek innovative solutions. That crisis exposed the vulnerabilities of traditional investment management structures, sparking a growing interest in advanced technologies. Anyone in the industry knows that innovation is not just desirable—it’s essential. Integrating AI offers a chance to automate processes that once required deep human analysis, reducing the risk of human error and boosting operational efficiency.
However, we can’t overlook the reality that many claims about using AI in investment strategies are more about marketing than substance. Traditionally, fundamental managers have been skeptical of AI, while the quantitative sector has often resorted to rebranding conventional approaches as “almost AI.” This raises important questions about the readiness and expertise of market players to incorporate these complex technologies.
The Skills Gap in AI and Its Implications
The skills gap in AI poses a significant threat, particularly for two key roles: research managers and investment managers. Researchers are responsible for vetting investment strategies and must possess the skills to critically evaluate AI-driven approaches. Without these skills, they risk overlooking superior strategies or, worse, approving flawed ones. On the flip side, investment managers face mounting pressure to demonstrate their use of AI to clients, which can lead to exaggerations or misapplications.
In a landscape where the demand for AI skills outstrips supply, ambitious investors can capitalize on this gap. A prime example of how professionals can bridge their skills gap is the Professional Certificate in Data Science launched by the CFA in April 2023. This program aims to equip industry professionals with the most relevant and well-designed resources to tackle AI challenges head-on.
AI Strategies and the Future of Investment Management
The AI-driven investment approach represents a systematic process designed to automate much of the fundamental analysts’ work in security selection, as well as the quantitative analysts’ work in identifying long-term causal drivers. A recent Mercer survey highlighted that more than half of managers claim to be using AI, but the risk of “AI washing” is real; companies might inflate their usage to appear more advanced or competitive.
Many investment groups are already using tools like Microsoft Copilot or ChatGPT sporadically, but to claim that AI is fully integrated in these instances is a stretch. It’s crucial for research managers to not only evaluate current AI applications but also to differentiate between genuine integration and misleading marketing.
Moreover, the rise of AI will challenge both passive and factor-based investment strategies. Its ability to blend the best elements of fundamental active investing with quantitative strategies—at a lower cost and on a larger scale—could revolutionize active management. However, the success of this integration hinges on having the right skills and experienced leadership in technology and AI within firms.
In conclusion, AI is not just another technology; it’s a transformative force that has the potential to redefine investment management. Companies must confront the challenge of the AI skills gap to avoid falling behind. Asset allocators need to ensure they collaborate with managers and service providers who not only adopt AI but do so with the necessary expertise at all levels of their organization. For professionals with the right mindset, this skills gap presents an unprecedented opportunity.
