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Artificial intelligence (AI) could be used by pension funds to cut costs, increase investment returns, and highlight possible risks, but there are still \u201csignificant challenges to overcome\u201d with its use, said the Mercer CFA Institute global pension report.<\/p>\n
On Oct. 17, the annual joint report<\/a> from the consulting firm and investment professional association marked AI as useful for helping pension fund managers trawl through massive amounts of data that could highlight opportunities and build custom investment portfolios.<\/p>\n \u201cAI will affect the operations of pension systems around the world,\u201d lead author and Mercer senior partner David Knox wrote. \u201cIt has the potential to greatly improve the member experience as well as members\u2019 retirement outcomes.\u201d<\/p>\n Natural language AI tools could also be used by pension funds to analyze their members, scraping data from emails and calls so the fund can personalize its marketing and outreach efforts based on how each individual communicates.<\/p>\n AI-assisted analysis is touted to identify patterns and discover market sentiment and signals to suggest unconventional future investment opportunities.<\/p>\n \u201cThis can lead to improved asset allocation and\/or better diversification, resulting in higher long term returns and lower volatility.\u201d<\/p><\/blockquote>\n AI could also help investors take stock of environmental, social and governance (ESG) considerations. The technology is also expected to enable automation of middle and back office environments, lowering costs that can narrow the differentials between passive and active investment strategies.<\/p>\n AI is also expected to enable the prediction of member behavior in response to a variety of possible economic and political circumstances that can impact the cash flows of a pension fund.<\/p>\n \u201cFor example, a stock market crash can lead to members switching to defensive asset classes, whereas a newly elected government may lead to some retirees withdrawing their accrued benefits.\u201d<\/p><\/blockquote>\n However, AI tools can generate fake or misleading information, and uncertainty around AI use is likely to remain, as models are \u201cunlikely to be able to predict market prices with accuracy.\u201d<\/p>\n The report also highlighted the need for \u201cstrong defenses against cyberattacks, scammers and other security breaches.\u201d <\/p>\n