AI ‘central’ to increasing wealth managers’ digital asset allocations

The adoption of artificial intelligence (AI) and machine learning tools is central to increasing digital asset allocations among wealth managers and institutional investors, a study from Nickel Asset Management has shown.

The digital assets hedge fund manager found that 78 per cent of wealth managers and institutional investors believed AI tools will be critical or very important in their organisation’s decision to increase digital asset allocations over the next two years.

AI-led risk management tools from institutional-grade managers were key to increasing exposure, according to Nickel, with 78 per cent of respondents saying they were likely to increase digital asset exposure over the next 12 to 24 months as a result.

Three quarters (75 per cent) of those who already invest in digital assets said they would increase their allocations by more than 25 per cent if AI risk management tools were proven to materially improve drawdown control and oversight.

Nine in 10 (90 per cent) agreed that institutional digital asset managers would need comprehensive AI-enabled risk management to be considered credible.

Wealth managers and institutional investors saw AI-enabled portfolio construction and position-sizing tools as the most likely route to improving their investment committees’ confidence in digital assets, cited by 40 per cent of respondents.

This was only marginally ahead of automated compliance and regulatory reporting, which was selected by 39 per cent.

However, concerns about using AI in the digital asset investment process remained, with 25 per cent highlighting data quality and manipulation as their greatest concern.

One in five (20 per cent) pointed to cybersecurity or model risks as their biggest worry, followed by regulatory uncertainty (17 per cent).

“AI and machine learning are rapidly becoming part of the institutional infrastructure for managing digital asset portfolios. In our own multi-strategy business, we see their greatest value in strengthening risk monitoring, portfolio construction, and decision making across an increasingly complex and fast-moving market,” commented Nickel Digital CEO and founding partner, Anatoly Crachilov.

“Our research suggests this is also becoming an important consideration for allocators. Institutional investors increasingly expect managers to demonstrate that leverage of AI can materially improve alpha generation, risk oversight and drawdown control.

“Over time, that capability is likely to become an important component of what institutional investors regard as a credible, institutional-grade digital asset manager.”

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