You might have noticed a trend in our blogs over recent months – there has been a recurring theme of AI products that could be a good investment. But what if Artificial Intelligence itself could help with investment decisions just as it can offer excellent customer service? In fact, this learning technology can already assist in the finance sector, and its ability and skill levels are constantly developing to become even smarter – but after all, intelligence is in its name.
Large financial institutions such as JP Morgan and PwC have already taken advantage of AI to assist on their business decision-making by using big data. For example, PwC have created a huge model of 320 million US consumers’ financial decisions from which they can use AI to simulate future customer choices – and therefore influencing the corporation’s investment decisions. However, in this case, AI is not taking over a human’s job, as some worry. Instead, it supplements it. Previously, investment decision makers had to analyse incomplete data – AI simply gives them a fuller picture with more sophisticated data, so better decisions can be made.
AI is not yet doing the investing itself, but this might be the next step – once something that experts call “strong AI” is further developed. At the moment, Artificial Intelligence can read through an earnings call and learn what is “bullish” versus what is “bearish”. It can also recognise patterns that cause analysts to make decisions. As the technology continues to learn more, experts hope it will not only be able to identify the patterns – but act more creatively and ask why so it is able to draw conclusions, and therefore perhaps start making the investment for itself.
It seems, therefore, there is an exciting future for AI in private equity. A recent survey of private equity investors by Coller Capital found that two-thirds of limited partnerships expect to use AI within their private equity business in the next five years, whether this is for deal sourcing, due diligence and deal analysis, or increasing business value.
However, many do not believe AI will ever be able to fully replace human expertise in finance, as, according to Morningstar columnist Jon Rekenthaler the financial markets are so unpredictable, even AI cannot model them completely. “It is difficult for a computer program to postulate how all other market participants might behave”, he says.
Furthermore, we must be aware of the potential risks AI can pose. Some argue it has an inherent gender and cultural bias as a large proportion of it is designed by white, straight men. Therefore, it is important to choose a system that fairly represents a diversity society – after all, there is little point to using AI in making financial decisions if not everyone is accounted for.
Another risk is how a company chooses to use Artificial Intelligence. In some cases, it may not be smart to implement AI in areas where a business is already strong, but use it where there is a weakness in knowledge instead, to boost a team – just as big businesses already have. Firms like PwC and JP Morgan recognised that however intelligent and experienced their analysts might be, they can never have the same information that big data offers. Therefore, they use AI to augment their existing experience and improve their service.
Overall, using AI to influence and inform investment decisions seems like an exciting direction for the finance industry to be taken. It can hopefully lower risk and maximise returns for investors and investments – a positive outcome all round. It yet again, it shows the importance of data when making an investment decision – something that onefourzero can help with through digital due diligence.
While AI might not be completely stable just yet, it doesn’t mean that businesses have to wait to reap the benefits of digital data when making investment decisions. onefourzero already has the capabilities to analyse and advise based off such data, and we would be more than happy to discuss how we might be able to help on your next investment.