The global asset management industry will be able to wring a number of benefits from generative artificial intelligence (AI) — but beating the markets won’t be one of them, according to Moody’s Ratings.
While there are many areas of the fund management business that may be able to enjoy greater efficiencies with the help of AI, the rating agency argues that the technology won’t enable sustained market outperformance.
“The fundamental nature of markets is that for every winner there is a loser,” the agency said in a report. “Outperformance in the stock market is a zero-sum game.”
Historically, the adoption of new technology has been unable to create a persistent advantage in markets, the report noted.
“Those that gain an edge one year will typically lose out another and past technological advances have been unable to change this dynamic,” Moody’s said.
While AI will enable firms to automate a variety of tasks in areas such as product manufacturing, distribution, administration and compliance, when it comes to portfolio management, any technological advantage will ultimately prove temporary, the report said.
“AI-enhanced asset management will eventually achieve — once costs are subtracted — an average return of slight index underperformance,” Moody’s said.
Distribution and back-office administration are the areas of industry where the potential for gains from AI is likely the highest, the report suggested.
But, even there, “implementation costs could be high and efficiency gains will need to be large to offset them.”
The prospect of AI-powered cost savings will be more beneficial for active managers, which have higher operating costs to start than passive managers, and will be most rewarding for firms that can implement the technology cost-effectively, the report said.
“The enduring impact and real value of AI in asset management will … [be] in enhancing customer experience, personalizing investment solutions and efficiency gains via automation,” Moody’s added.