More than one-half (54.5%) of alternative investment firm general partners and limited partners confirmed they are using artificial intelligence for predicting market trends and investment results, and most think AI may eventually lead to job cuts in the alternatives industry, according to a survey by fintech firm Dynamo Software that was released on Nov. 6.
Meanwhile, 28.4% are exploring options to incorporate AI into their strategies, while 17.1% prefer relying on traditional methods for such activities.
The survey, "An Inside Look at AI Trends & Future Plans with the Private Investment Community," also found that adoption of AI is in its early stages. According to the survey, 60.2% of GPs and LPs acknowledged their firms are just now beginning their entry into AI; and 12.5% are not using AI at all. Otherwise, 20.5% have seamlessly integrated AI into their core operations, and 6.8% are leveraging AI extensively.
“Both GPs and LPs seem to be proceeding with cautious optimism, if not uncertainty, as they stake out a middle-of-the-road position on AI’s disruptive potential to traditional investment strategies,” the Dynamo report said. “While they acknowledge the potential, hesitancy remains over concerns about data quality and technical expertise. This cautious stance likely means firms will adopt AI incrementally, favoring small-scale projects over sweeping changes.”
Most respondents also think AI may eventually lead to job displacements in the alternative investment industry over the next five years. Some 36.4% think job losses will be “somewhat likely;” 23.9% think it will be “likely,” 22.7% said “very likely”; and 6.8% said “highly likely.” Only 10.2% view such job displacements as “unlikely.”
The greatest challenges GPs face in adopting AI are issues with data quality and availability, which was cited by 58.1% of respondents; followed by the need for technical expertise and systems integration (45.2%); and cost concerns (38.7%).
In addition, 74.5% of LPs expect to increase their AI allocations in the coming year, while 25.5% do not. Of this group of LPs, 52.6% foresee a “moderate” increase, 36.8% anticipate a “significant” rise, and the remainder predict a “slight” uptick in AI investment.
Moreover, almost one-half (47.1%) of respondents reported performance improvements due to AI adoption, while 29.9% saw no change. (The question was not applicable to the remaining respondents as they had not adopted AI yet).
“With nearly half of investors reporting that AI has improved their portfolio performance, it’s clear that artificial intelligence is emerging as an undeniably powerful tool in transforming the investment landscape," said Hank Boughner, CEO of Dynamo, in a release issued with the report. "Though we’re only just beginning to scratch the surface of how these changes will unfold in the industry, there seems to be an openness by many to use AI to optimize their investment strategies.”
The survey gathered input from nearly 100 global LPs and GPs and was conducted in August and September. About 36% of responding firms had more than $10 billion in assets under management, 28% had less than $1 billion and the remainder had between $1 billion and $10 billion. The majority (61%) of the respondents were located in the U.S. and Canada, followed by Europe (23%), Middle East (6%), Asia (4%), with the remaining split between Central/South America and Australia/New Zealand.
