Finance Monthly - August 2023

10 Finance Monthly. The Monthly Round-Up ROBOTS CAN BE EXCELLENT INVESTORS A robot can select the best private equity (PE) funds, new research from Saïd Business School at the University of Oxford has shown. According to the study, such technologies can choose the best PE funds by reading fundraising prospectuses. The machine used within the study selected funds that generate returns that are 5% higher each year compared to average funds. In the paper, Limited Partners versus Unlimited Machines; Artificial Intelligence and the Performance of Private Equity Funds, a team of researchers led by Ludovic Phalippou, Professor of Financial Economics at Oxford Saïd, shows that the quantitative information that investors pay significant attention to during their due diligence process, such as PE firm reputation and past performance, is ultimately unrelated to PE fund performance. In contrast, investors do not seem to react to the qualitative information in fund prospectuses, but that information can be used by a robot to predict returns. Ludovic commented: ‘It is the first time that artificial intelligence is shown to be able to select investments based on dense, and technical documents that are written exclusively for highly specialized and large institutional investors; and the robot beat most of these large professional investors. That’s a world premiere.’ FINANCIAL SERVICES LEADERS BELIEVE AI HAS A FUTURE IN THE SECTOR Exclusive data from Kin + Carta, the global transformation consultancy, has revealed that the overwhelming majority of financial services leaders believe AI has an intrinsic role in the sector. At the recent FWD23 summit hosted by the consultancy, whose clients include Santander, 80 senior leaders from the UK’s largest financial services brands were asked: “What will help your organisation harness the power of AI and unlock innovation?”. A huge 98% of the C-suite and VP-level respondents believe that they won’t need to convince others that AI “is the future” of financial services. Meanwhile, 30% said “moving past the hype cycle and realising actual value” would help their organisation harness the power of AI. Other findings from the survey showed that half (50%) of the attendees see that “identifying AI use cases” would help them implement AI, with: 34% want these “use cases” to demonstrate how AI can transform customer experience While 16% wanted to see the true value of AI to understand where it can support business operations. Phil O’Neill, director of financial services at Kin + Carta Europe commented on the findings: “Financial services is no stranger to disruption, but unlike previously, there seems to be a sense of common thinking across the sector - AI is here to stay. “But we are not there yet. As the survey results suggest, we need to be moving beyond the hype and actually prove the use cases and value the application of AI can deliver. Only then, with the right data foundations in place, will we see the more profound applications of AI come to the fore. “Industry leaders can see the positive impact that AI will have on financial services but only if we think pragmatically, build tools responsibly, and understand limitations, will we reach that AI mecca where it is actually making a worthwhile difference.”

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