Unlocking the Potential of AI in Fixed Income Investing

Three major challenges – low interest rates, exponential growth in data volumes, and increasing regulatory requirements – are driving asset managers to develop new technology-based solutions. 

We have developed three use cases to serve as examples of how AI-enabled technology can solve the challenges of today. 

Increasing cost pressure and decreasing profit margins have forced asset managers to rethink their traditional approach to the business of investment management. In numerous interviews we conducted with executives of several large German Asset Management firms, the findings support our hypothesis that fixed income asset management needs to catch up.
 

Key Challenges in Fixed Income Investing

We identified three major challenges – low interest rates, exponential growth in data volumes, and increasing regulatory requirements – that are driving asset managers to develop new technology-based solutions inside and outside their core business. At the same time, technological progress offers a unique opportunity to solve these challenges.
 

AI Technology Trends 

Thanks to four key technological trends in Artificial Intelligence, players in the industry have the opportunity to reinvent their business and to overcome present challenges.

Use Cases

Three different use cases have been developed as part of this study and are explored in detail:

From Use Cases to Business Building

Traditionally, technological solutions in the back-office are designed and implemented to improve efficiency and lower costs. In the mid to long run, however, some competitors always manage to catch up or replicate those efficiency-boosting capabilities and in turn limit a firm’s ability to defend its cost advantages. Firms may therefore find it beneficial to market AI use cases to third parties, rather than exclusively implementing them in-house, due to the nature of AI, the high upfront investment, and certain strategic considerations. This “Back-office as a service” model uses AI-enabled technologies to increase efficiencies in a firm’s own back office while also providing it to third-party customers or competitors at the same time.

How Deloitte is involved

With a diverse team of dedicated consultants, data scientists, technical engineers, and subject matter experts, Deloitte channels 360-degree expertise to help clients in the asset management industry innovate their businesses using untapped technologies. Deloitte services range from identifying opportunities in the field of automation in general or AI in particular to developing custom strategies aligned with the organization’s business goals and supporting implementation of innovative solutions and cutting-edge technology.