Three ways AI is shaping wealth management
The perception of artificial intelligence (AI) and machine learning (ML) in wealth management is changing. Both those who thought AI had no place in wealth management and those who thought AI would completely take it over were wrong. AI and ML have become essential tools for wealth managers to add value to their business. From selecting and managing the investments themselves to operating a more efficient company and enhancing customer experience, AI is now impacting all facets of wealth management. It provides insights on investments and potential investments, enables the automation of previously tedious tasks and allows for personalized and targeted customer experiences.
Augmenting and automating investment insights
AI enables data-based decision making for selecting and managing investments. As more and more data are collected from every facet of life, ML models can improve the use of current data sources and also integrate novel and unique data sources not previously used to inform investment decisions. A ML algorithm could use pattern recognition to make market forecasts and find trends not perceptible to humans. ML models could also use natural language processing to automatically summarize financial reports. These automatically produced results can be easily displayed through dashboards and reports, providing timely and actionable insights to decision makers.
Enhancing recommendations for clients
In addition to allowing for more data-based decision making, wealth managers can also use AI and ML to strategize which products would be the best fit for a client. Clients have different personal preferences, risk appetites and goals. Well-built AI and ML algorithms can create a client profile and use their persona to recommend wealth management products and strategies, creating a more personalized experience.
Increasing office efficiency and security
ML and AI products can automate manual, time-consuming processes, which frees wealth managers and analysts to focus on higher-level investment decisions. For example, AI and ML algorithms can be trained to automatically generate client reports, monitor and report suspicious activities or answer questions from analysts that might have previously required human interaction.
AI is changing all aspects of how wealth managers conduct business but not in a way that replaces humans or takes advantage of clients. Rather, AI takes on the behind-the-scenes work, providing automation, efficiency and insights for decision makers. As a result, companies that do not adopt AI and ML technologies may fall behind. AI takes data, expertise and effort to build and train effective models and algorithms, but when this technology is properly deployed, it can increase returns for everyone.
AIG to sell US$7.3bn of insurance assets to Blackstone
American International Group Inc. (AIG) has agreed to sell insurance assets to Blackstone Group Inc. for a total of US$7.3bn. The sale will be split into a 9.9% equity stake to be sold for US$2.2bn, and affordable housing assets for US$5.1bn.
The insurer and private equity firm have agreed to form a “long-term strategic asset management relationship” for an initial $50 billion from the life and retirement portfolio, with the deal building on two of Blackstone’s initiatives: to build permanent capital by expanding into insurance and to pursue lower-cost rentals for its real estate business.
AIG-Blackstone asset management deal to grow to US$92.5bn in the next six years
The asset management deal between AIG and Blackstone is expected to reach a value of US$92.5bn within the next six years. Jon Gray, President and Chief Operating Officer of Blackstone, said: “We are honored to become AIG’s strategic partner, supporting the growth and success of one the world’s top life insurers as a standalone business. We believe our leading private credit origination platform will play an important role to help meet long-term policyholder obligations while maintaining strong credit quality”.
In May earlier this year, Blackstone told the San Diego Union-Tribune that it was purchasing around 5,800 apartments in San Diego from the Conrad Prebys Foundation for a sale price of over US$1bn. The company said that it was going to keep most of the rentals affordable for residents who make up “80% or less of the area median income”.
Following this announcement, AIG saw a rise in extended trading by 6.7%, closing at US$46.41 in New York. Meanwhile, Blackstone rose about 4% and closed at US$98.65.
An attraction to insurance
Blackstone, as well as other private equity businesses such as Apollo Global Management Inc. and KKR & Co., have been attracted to insurance because it generates a steady stream of investable capital. This expansion in permanent capital helps firms become less reliant on the ups and downs of the private equity model, which normally requires regular fundraising from several institutions.
Investment companies have also benefited from a movement by insurers to dispose of life businesses and reduce non-core assets in order to raise capital. In January, Blackstone purchased a life business from Allstate Corp. for US$2.8bn, enabling the company to oversee a US$28bn portfolio as part of the deal.