How Manulife Is Building AI Tools For The Future Of Investing

Key Concepts

• AI Research Assistant: A tool developed by Manulife Investment Management to enhance global investment strategies by sourcing, understanding, and packaging information.
• Co-creation: The process of developing AI tools collaboratively with investment teams to ensure demand-led solutions and higher adoption rates.
• Human Judgment: The central tenet of Manulife's AI policy, emphasizing that human expertise remains at the core of investment decisions, with AI handling repetitive tasks.
• Build vs. Buy: A strategic consideration for AI development, where companies decide whether to develop proprietary tools or acquire existing technologies.
• Hybrid Approach: Manulife's strategy for AI development, combining in-house tool building with the purchase of external technologies.
• Complementary AI: The approach of integrating AI tools that enhance, rather than disrupt, existing investment processes and fundamental research.
• Fiduciary Responsibility: The ethical and legal obligation of investment managers to act in the best interests of their clients and adhere to regulatory standards.
• Model Risk Committee: A committee at Manulife responsible for reviewing and approving new AI models to ensure their appropriateness, testing, and ongoing performance.
• Democratization of AI: The process by which AI technology becomes more accessible, potentially leveling the playing field across different market players.
• Embrace Uncertainty: The advice given to executives to accept the unpredictable nature of AI development and its future impact.

AI Integration at Manulife Investment Management

Enhancing Global Investment Strategies with AI

Manulife Investment Management has been investing in AI capabilities for nearly a decade and recently launched a new AI research platform designed to enhance its global investment strategies. This initiative aligns with a broader market trend, as evidenced by a Forbes AI research survey indicating that 97% of C-suite executives plan to increase their AI implementation budgets. The firm views AI as a transformative force in investment management, enabling a broader understanding of global data sources and investment opportunities.

The new AI research assistant is utilized to package, source, and understand information, populate templates, and inform analysis, ultimately exploring investment opportunities. A key aspect of this implementation is its role as an "AI research assistant," emphasizing that it augments, rather than replaces, the human element in investing.

The Centrality of Human Judgment

A core principle at Manulife is that human judgment remains at the heart of their investment process. AI is intended to handle repetitive tasks such as data sourcing and templating more efficiently, freeing up analysts to focus on higher-value activities like market analysis and investment decision-making. This approach aims to increase efficiencies and enable quicker market responses.

Co-creation and Bottom-Up Adoption

Manulife adopted a "co-creation" approach to introducing AI to its teams, fostering deep collaboration between AI and investment teams. Instead of developing tools in isolation, the AI team was embedded with investment teams to understand their daily operations, challenges, and how AI could add value. This demand-led process resulted in greater and quicker adoption, as the tools directly addressed existing problems. The team comprises individuals with diverse backgrounds, including CFA charterholders, quant resources, and AI experts, all possessing an understanding of investment principles and client objectives.

This collaborative approach has been instrumental in shifting attitudes from cynicism to active usage, with some individuals transitioning from skeptical to "super users" in a short period.

Addressing Concerns: Build vs. Buy and Disruption

Two primary concerns were addressed during AI development:

1. Build vs. Buy: Recognizing the rapid evolution of AI technology, Manulife adopted a hybrid approach. They build proprietary tools with fast prototyping and scale them based on demonstrated benefits, accepting some redundancy. In other areas, they leverage external technology.
2. Disruption of Existing Processes: Manulife ensured that AI tools were complementary to their established bottom-up fundamental research processes, aiming to add value without disrupting long-standing, strong processes.

The integration has been largely seamless, with 65% of the public markets investment team utilizing the AI research assistant, a figure that is continuously increasing. This adoption rate has exceeded initial targets, with increased usage across the firm.

Client Reception and Value Proposition

Clients are reportedly very interested and excited about Manulife's AI initiatives. The firm emphasizes that AI is augmenting, not delegating, decision-making, which remains with their human workforce. The AI tools are presented as enhancing research depth, market breadth, and the uncovering of investment opportunities, all embedded within existing processes and teams. Clients are keen to see continued innovation to further add value.

Managing the Narrative of Job Displacement

Manulife addresses the common concern of AI leading to job losses by framing AI as a tool that allows employees to offload repetitive, data-heavy tasks and focus on value-added activities. The focus is on changing how work is done and where time is spent, rather than changing what teams do. The firm emphasizes continuous investment in both people and technology, offering AI training and upskilling opportunities to meet employee desires and adapt to the evolving global economy.

The Future of Investment Management and AI

The consensus is that AI is here to stay and will play a significant role in investment management. While AI will contribute to the required EQ and IQ for investment roles, it will not be the sole determinant. Human qualities such as adaptability, resilience, and the ability to manage risk remain crucial. AI will provide confidence in decision-making, but personality types suited for taking calculated risks will continue to be essential for client benefit.

Responsible AI Implementation and Fiduciary Duty

Manulife prioritizes responsible AI scaling and implementation, upholding its fiduciary responsibility to clients and regulators. This involves adhering to the highest ethical standards. A Model Risk Committee, comprising experts from compliance, risk, and AI teams, reviews and approves new AI models. Ongoing testing is conducted to identify biases and ensure models behave as expected, with the ability to reapply or pull back models if necessary.

AI as a Leveling and Disruptive Force

AI is recognized as a disruptive force across industries, potentially leveling the playing field by democratizing access to advanced capabilities. While significant capital expenditure in AI can provide advantages to larger investors, the technology's increasing accessibility can benefit a broader range of market participants. The inherent uncertainty surrounding AI's future development also contributes to this leveling effect.

Risk Management in an AI-Driven Market

Investment management inherently involves risk management. Manulife addresses AI-related risks from two perspectives:

• Market Perspective: They invest in markets impacted by AI and are accustomed to managing incomplete information. Investment decisions are made with a clear understanding of potential information gaps, and they will step back if these cannot be adequately filled.
• Company Perspective: Internal AI development tools are used to identify and manage risks, ensuring adherence to fiduciary responsibilities and high standards.

Key AI Trends and ROI Expectations

A significant AI trend being monitored is the substantial investment (hundreds of billions of dollars) in AI, particularly in "enablers" like chip makers and data centers. The expectation is that the "beneficiaries" of AI will eventually see tangible benefits and returns on this investment. Over the next 6-12 months, the market is anticipated to become more impatient for these benefits to materialize.

Regarding the return on investment (ROI) for Manulife's AI research assistant over the next five years, it is difficult to quantify precisely due to the fast-evolving nature of AI. The ultimate objective is to add value for clients and meet their investment objectives. If AI, alongside other processes, helps deliver these outcomes, it will be considered a successful return on investment.

Advice for Hesitant Executives

The advice for C-suite executives hesitant about integrating AI is to embrace uncertainty. The power of AI to add value across all areas of a company is undeniable. While the technology will change and not all implementations will be perfect, failing to embrace this uncertainty risks being left behind. The recommendation is to move fast and adapt, even if it means making mistakes along the way.