Majority of buy-side firms anticipate increased spend on AI technology

Research suggests the buy-side is slightly ahead in terms of AI technology adoption compared to sell-side firms and exchanges.  

Over 60% of asset managers have said they expect their spending on artificial intelligence (AI) technology to increase over the next year, according to research.

TABB Group surveyed 160 buy-side, sell-side and exchanges on their use of the technology and found that current internal budgets are modest, with 75% of respondents revealing they either have no budget in place, or a budget of up to $500,000.

However, 61% of asset managers said that they expect spend on AI technology to increase over the next 12 months, while 39% expect it to remain the same. At the same time, 80% of sell-side firms and 55% of exchanges, or trading venues, anticipate increased spend.

The research also found that buy-side firms are further ahead in their adoption of the technology, with 83% of asset management respondents stating that they were at least in the planning or research phase, while 73% of sell-side and exchange firms could say the same.

“It’s high on the change agenda at most firms, with the main use case being around the investment process, but also in trade execution and operations,” said Tim Cave, research analyst at TABB Group, and author of the research.

Actionable insight was cited as the major benefit of using AI technology by a majority of 56% of buy-side respondents, followed by 28% who said efficiency and automation was the key benefit. Strategy selection and risk management were also listed as major advantages for institutional investors implementing the technology.

In terms of the barriers to the adoption of AI technology, TABB Group found that data quality was the most prominent issue cited by 55% of all respondents as being the biggest challenge, followed by talent recruitment as firms are forced to compete with the likes of Google and Facebook to win staff.  

“Our survey revealed that the major roadblock to further adoption of AI approaches was data quality with over half of respondents citing this as their biggest challenge – it was a particular concern for the buy side,” Cave added.

“Right behind data quality was talent recruitment, followed by regulatory/compliance issues, an understandable major concern for exchanges and trading venues, reflecting high levels of regulatory scrutiny under which they operate… Challenges do remain in implementing AI approaches, particularly from a data quality perspective. The increasing reliance of machine over man is clearly a work in progress.”

A separate survey of 500 global asset managers, asset owners and insurance companies carried out by State Street late last year found that the buy-side is increasingly looking to emerging technologies, such as AI, to tackle concerns around hitting growth targets within the current market environment.

Almost half of respondents labelled emerging technologies, including AI and blockchain technology, as a ‘top enabler of growth’ over the next five years. The results reflected a significant increase from State Street’s 2017 survey, where just 18% of respondents thought that new technologies would be a top growth enabler.

In the summer, research services provider BarclayHedge also found that more than  half of hedge funds are currently using AI or machine learning technology to inform investment decisions and generate trading ideas.