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Could AI Displace Investment Bank Research?

Traders Magazine Online News, July 11, 2018

John D'Antona Jr.

New regulations, new technologies and evolving commercial demands are transforming the investment research industry and could reduce demand for investment bank research and speed investor uptake of artificial intelligence (AI) solutions.

Approximately 70% of the portfolio managers, CIOs, analysts, and other investment professionals participating in a new study from Greenwich Associates, and commissioned by Thomson Reuters, expect MIFID II regulations and other factors to result in the further “unbundling” of investment research from trading—not only in Europe, where the rules took effect earlier this year, but around the world.

“Due to these and other changes, approximately half of these investors expect to decrease their reliance on investment bank research,” said Richard Johnson, Vice President of Greenwich Associates Market Structure and Technology, and author of a new report, The Future of Investment Research, which presents the full findings of the new study.

As the market for investment research evolves over the next five to 10 years, investors will rely more on proprietary in-house research. In addition, many investors expect to increase their use of research from independent providers, and to integrate alternative data sources more tightly into their investment process.

Those in-house research processes will increasingly include artificial intelligence. Although only 17% of study participants are currently using AI as part of their investment process, more than half expect to increase the level of AI integration and recruit additional internal expertise, and 40% expect to increase budgets for AI.

“As they invest in new AI and machine-learning technologies, investors will need to obtain more data and information—including alternative data—to identify new ways of finding alpha,” said Mahesh Narayan, Global Head of Portfolio Management and Research at Thomson Reuters.

“Data science skills and AI expertise are replacing advanced degrees in quantitative finance as the most in-demand qualifications at large investment organizations,” adds Richard Johnson.

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