Mercer’s research suggests that pension funds could benefit significantly from leveraging artificial intelligence (AI) technologies. AI can help pension fund managers analyze large amounts of data efficiently, uncover investment opportunities, and create customized investment portfolios.
One application is using natural language AI tools to analyze communication data from members, such as emails and calls. This information helps pension funds tailor their marketing and outreach strategies based on individual communication styles.
AI-assisted analysis can identify patterns and market sentiment, providing insights into unconventional investment opportunities. This approach aims to enhance asset allocation and diversification, leading to higher long-term returns and lower volatility.
Moreover, AI can assist in assessing environmental, social, and governance (ESG) considerations, aligning investments with ethical and sustainable practices. Automation in middle and back office operations is expected to reduce costs, narrowing the gap between passive and active investment strategies.
The report also emphasizes the potential for AI to predict member behavior in response to economic and political changes. For example, during a stock market crash, members might shift to defensive assets, while a change in government could lead some retirees to withdraw benefits.
However, the report acknowledges challenges, such as the potential for AI tools to generate fake or misleading information. The accuracy of predicting market prices with AI models remains uncertain. Additionally, strong defenses against cyberattacks and security breaches are crucial.
The historical context notes that computers have been influencing investment decisions since the 1980s, with algorithmic and high-frequency trading becoming prevalent. In 2018, up to 73% of U.S. equity trading reportedly involved algorithmic trading.
