Asset Managers set to invest in AI to overcome challenges post MiFID II
Just over half of asset managers are likely to integrate artificial intelligence (AI) into their investment processes within the next few years, as post MiFID II many firms turn to in-house research, according to a survey conducted by Thomson Reuters and Greenwich Associates.
Thirty CIOs, portfolio managers and investment analysts were surveyed globally as part of the report entitled Seismic Shifts – The Future of Investment Research.
Currently only 17% of firms are actively using AI but this is set to increase, with 10% of survey respondents stating they have plans to incorporate AI within the next 12 months.
Respondents were asked how they saw the use of AI evolving further into the future; 56% expect to increase their use of AI when looking further ahead. This is backed up by budget allocation expectations; 40% of respondents expect to increase AI budgets and 81% expect the budget for technology, data and analytics to increase.
In-house research post MiFID II
Larger asset management firms are expected to gain competitive advantage as firms rely more heavily on in-house research post-MiFID II , according to the report.
MiFID II regulation came into effect in the UK and Europe in January this year.
As a result of MiFID II legislation, research costs now have to be fully disclosed, resulting in brokers having to charge separately for the research they provide rather than “bundling” the charges up.
This has forced European and UK asset managers to decide whether they will absorb research costs or pass them onto investors.
Approximately 21% of survey respondents stated they are already paying for investment research out of their firms’ resources and 49% stated it was “somewhat or very likely” they would be doing so in five to ten years’ time.
In-house proprietary data is currently the most-common source of data, used by 90% of survey respondents. Investment banks is the primary source for only 45% of survey respondents.
The popularity of in-house data is likely to increase with 43% of survey respondents stating they expect to use more in the next decade, while 50% expect their use of investment banks to decrease.
The report stated: “These data points strongly suggest that investment research will evolve into a more stand-alone business for banks and independent research providers, with the costs more likely borne by the asset management firms than the end investor.”
“This represents a fundamental change in the overall business model for investment research. Institutional investors will be less beholden to large brokers for their research and will be more focused on the value offered by their research providers.
“In addition, asset management firms will likely rely more on internal research teams than paying for external research. As larger asset managers are more able to absorb these costs, they will gain further competitive advantage.”
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All figures correct as at 31.12.2019.