In the domain of pension fund management, artificial intelligence emerges as a game-changer, offering an array of advantages, as indicated by Mercer’s research. The Mercer CFA Institute global pension report acknowledges AI’s potential to reduce costs, amplify investment returns, and spotlight potential risks. However, it underscores the existence of “significant challenges to overcome” in its implementation.
Released on October 17, the annual collaborative report from the consultancy and the investment professional association positions AI as a valuable tool for sifting through colossal datasets. This capability facilitates the identification of opportunities and the construction of bespoke investment portfolios.
Lead author David Knox, a senior partner at Mercer, asserts, “AI will reshape pension systems globally,” foreseeing an enhanced member experience and improved retirement outcomes. Natural language AI tools can delve into member profiles by analyzing communication data from emails and calls. This data scraping enables pension funds to tailor marketing and outreach efforts based on individual communication styles.
AI-assisted analysis extends to pattern identification, market sentiment discernment, and the identification of unconventional investment prospects. The outcome? Enhanced asset allocation, improved diversification, leading to heightened long-term returns and reduced volatility.
AI’s influence extends to considerations of environmental, social, and governance (ESG) factors. Furthermore, it promises to automate middle and back office operations, mitigating costs and narrowing the gap between passive and active investment strategies.
Predicting member behavior in response to economic and political variables becomes plausible with AI. Scenarios like a stock market crash prompting a shift to defensive assets or political changes leading retirees to withdraw benefits can be anticipated.
Despite these promises, caution is warranted due to the potential for AI tools to generate false or misleading information. The report emphasizes the need for robust defenses against cyberattacks, scams, and security breaches.
The report recognizes AI’s current integration into investment markets, making decisions based on data analysis, reports, risks, and market trends. The evolution of programmable trading, in use since the 1980s, has reshaped investment management, with algorithmic trading contributing significantly to automated trading, accounting for up to 73% of U.S. equity trading in 2018 alone.
