A report from the European Securities and Markets Authority (ESMA) into the implementation of AI by investment firms has found a mixed take up and results.
The report, Artificial Intelligence in EU Investment Funds: Adoption, Strategies, and Portfolio Exposures, also said there has been a marked increase in the share of portfolios invested by actively-managed equity funds into AI-driven companies.
According to ESMA, there is a clear demarcation between larger and smaller firms in their use of AI.
The authors wrote: “While there is increasing evidence that large firms are moving fast in the experimentation with and the deployment of GenAI both in Europe and in the US so as not to fall behind competitors, AI’s uptake in the industry might be uneven due to scale-related challenges. Smaller asset management companies may struggle to keep up with larger firms in the adoption of AI due to limited budgets, knowledge barriers or technological challenges. In the meantime, larger players are accessing talent and technology from start-ups through acquisitions or joint ventures to speed up development and market roll-out.”
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ESMA said it had also found that investment funds promoting the use of AI have seen mixed success in recent years. Inflows and outflows, it said, had alternated and the second quarter of 2024 saw only €1bn in AUM — less than 0.1% of the total.
In conclusion, ESMA said the existing evidence on whether AI is giving funds an ‘edge’ is still ‘scarce and inconclusive’. Within the EU, it said it did not find any evidence to support outperformance or underperformance of 65 funds using AI until 2022.
It added: “The average returns and the risk-adjusted returns [‘alphas’] of funds that stated using AI over the three years leading up to the third quarter of 2024 were not significantly different from those of funds that did not make any reference to the use of AI in their investment strategy.”
