The AI edge in investment management

When holding a hammer in your hand, the world seems to be brimming with nails. At a point in time where AI has emerged as a powerful tool with seemingly endless potential, it’s tempting to view it as the perfect solution to almost every problem.

AI – or a hammer for that matter – can be an exceedingly effective tool. However, despite the myriad of possibilities AI offers, it’s crucial to remember that, like any tool, its effectiveness and appropriateness depend on the task at hand.

“AI is a new tool in the toolbox. Some of the problems that we couldn't solve before might suddenly be solvable with AI. Or solved in a better or more efficient way,” says Christian Runge, Director of Engineering for Compliance & AI at SimCorp.

“The point for me is to say that we need to create solutions that help clients. Our business at SimCorp is not AI; we are a financial software company that also happens to use AI to create better solutions for customers. That's the whole point.”

AI is a new tool in the toolbox. Some of the problems that we couldn't solve before might suddenly be solvable with AI. Or solved in a better or more efficient way.

Christian Runge, Director of Engineering for Compliance and AI, SimCorp

For all its hype and transformative potential, AI should be seen as just that: another useful instrument amongst others.

It can be easy to throw good money after bad investments in fear of being left behind the competition when a megatrend like Generative AI sets the agenda across almost all industries.

Supercharging efficiency

In the world of investment management, it’s all about creating results. A key way of doing this is by increasing productivity and reducing costs. In this regard the technology has immense potential, not least when it comes to supercharging efficiency.

The potential for creating value is certainly there. According to a financial services industry prediction by Deloitte¹ the top 14 global investment banks can boost their front-office productivity by as much as 27-35 percent by using generative AI. This would result in additional revenue of US 3.5 million per front- office employee by 2026. As engineering director for AI at SimCorp Christian Runge sees the mission of his team to help other parts of the business and enhance SimCorp’s offerings.

“My approach to the use of AI is that there needs to be some form of business opportunity. We’re not a research department studying AI. We see it as something that must create value externally,” says Runge.

My approach to the use of AI is that there needs to be some form of business opportunity. We’re not a research department studying AI. We see it as something that must create value externally.

Christian Runge, Director of Engineering for Compliance and AI, SimCorp

As an example, he points to the use of AI in investment mandates. These are the rules that defines guidelines, objectives, and constraints that dictate how an investment portfolio should be managed. The investment mandates set the strategy for how investments should be handled when it comes to aspects such as asset allocations, risk tolerances, and liquidity requirements.

All these are handled in the Compliance Manager module in the SimCorp investment management platform but the process of defining and applying the compliance rules based on the investment mandate is done manually.

“There are many thousands of compliance rules that must be matched with the investment mandates for each portfolio. That is very labor-intensive. AI can basically do almost all the work for you. It can also make it a lot easier to link the each of the hundreds of compliance rules to the investment mandate for each portfolio. This results in major time savings,” says Runge.

Ease of use

The application of AI in the Compliance Manager is expected to be launched next year by SimCorp. To Runge it is just one of many instances where AI will make a tangible difference and significantly increase productivity.

Another one is prompt-based interaction in elaborate front-to-back investment management solutions as a way to utilize AI effectively.

The ability to communicate with an intricate investment management solution via natural language empowers the end-users and improves self-service. It’s a powerful instrument for supercharging productivity and enhancing ease of use.

Even though a very complex technology by its own right AI is a very effective means to managing and reducing complexity for end-users.

“The world our clients are facing is increasingly complex in terms of e.g., technology and regulations. This is a way to handle the complexities while asking simple questions and getting simple answers. It’s all about ease of use,” says Runge.

Again, it comes back to understanding that AI can be a very powerful tool if put to work in the right circumstances – but it’s not about developing AI for the sake of the technology itself. It must make a tangible difference to the solutions, to the clients.

“To me AI isn’t very interesting in itself. It’s just a tool. It becomes interesting when it can be applied to deliver a user interface that is much easier to use. In ten years’ time, the ideal situation for me would be that we no longer need a specific area called 'AI' because it will have become integrated into the way we work.”

References

1. Financial services industry predictions | Deloitte Insights