Hank Boughner is CEO of alternative investment fintech Dynamo Software. Prior to leading Dynamo, he was president of global solutions at Global Payments Inc. 

AI interest is thriving among fund managers and asset allocators. This is no doubt welcome news for fintechs that are building or iterating their platforms with the help of AI. 

Startups seeking funding or product traction with private equity, venture capital, institutional investors, family offices and other alternative investment-focused firms may be especially optimistic about the community’s plans for the next 12 months. 

A new survey conducted by alts investment fintech Dynamo Software gauged sentiment from more than 100 investors around two AI modalities: firms’ investment in AI companies and firms’ integration of AI within their own workflows. Here’s what they had to say.

Cybersecurity, predictive analytics and data centers garner the most appeal.
More than seven in 10 limited partners (LPs), a category that includes entities like institutional investors, pension funds, endowments and high-net worth individuals, plan to increase their allocation to AI investments in the coming year. The majority (72%) plan to increase investment with AI-driven funds either in the next six months (32%) or sooner (40%). Additionally, more than a third (37%) say that increase will be “very significant.”

As far as the type of AI companies attracting the most interest from alts investors, cybersecurity (56%), predictive analytics (55%) and data centers (54%) have the most appeal. While autonomous vehicles and computer vision came in last in the ranking of opportunities, each garnered interest from 14% of respondents, indicating these technologies hold niche appeal and potential for growth in specialized sectors.

Asset allocators expect transparency, accept inexperience
Of note, LPs are also paying attention to how general partners (GPs) they entrust with their capital are using AI in their operations. GPs include venture capital, private equity, hedge funds and other firms that oversee fund strategy, investments and workflows. 

Regarding what’s most appealing about investment funds that use AI in decision-making, more than half of LPs (55%) say a proven track record and transparency are most important to them. Next in line is risk management (47%). Interestingly, just 27% of responding LPs factor expertise and experience into their decisions to invest in AI-driven funds. This is likely a reflection of the community’s recognition of AI’s newcomer status in the alts world. Indeed, the majority of GPs and LPs (60%) characterize their firm’s current AI strategy as “at the beginning stages of exploration.” 

However, AI-enabled fintechs should anticipate rising expectations for expertise as the technology continues to demonstrate its ability to deliver consistent and measurable results over time.

Early-stage users signal major opportunity for AI in alts
Just under a third (27%) of the LPs and GPs that participated in the Dynamo survey say they are fully engaged with AI, with 20% having incorporated AI into some of their standard processes. Just 7% say they are using AI extensively.

The top five ways GPs are using AI today include portfolio monitoring (35%), portfolio valuation (32%), deal origination/analysis (29%), document management (29%) and security analysis (29%). LPs, on the other hand, are using AI for automating data extraction and collection. Nearly 40% are already doing so, with another 14% set to start within the next six months.

Of those using the technology to predict market trends and investment outcomes, very few have fine-tuned its application. Just 11% say predictive AI is solely focused on specific markets, and just 6% say it’s dedicated only to specific use cases. This could signal an opportunity for niche-market AI finTech providers to fill a solution gap in the alts marketplace.

When it comes to satisfaction with the results delivered by AI, GPs and LPs appear hopeful. Responses regarding AI’s effect on portfolio performance revealed early promise: Nearly half (47%) reported they have experienced improvements. Nearly a third (30%) have realized no impact on performance. Notably, however, no respondents said they had experienced deteriorating performance due to AI. 

Exciting opportunities and significant challenges ahead
With nearly half of investors reporting that AI has improved their portfolio performance, it’s clear that AI is emerging as a powerful tool in transforming the alts investment landscape. While the industry is only just beginning to scratch the surface of how tech-induced transformation will unfold, investors are increasingly open to using AI to optimize their investment strategies.

For fintechs, this signals both exciting opportunities and significant challenges. The adoption of AI in alts opens the door for even further development and refinement of AI-powered platforms for GPs and LPs. With the growth of alts as an investment vehicle among emerging and legacy asset allocators, the integration of predictive analytics, personalized portfolio recommendations and automated decision-making tools can position fintechs as indispensable partners in the evolving alts ecosystem.

The growing reliance on AI, however, raises the bar for expertise and credibility. Fintechs must demonstrate not only cutting-edge technology but also a requisite understanding of financial markets and a commitment to transparency. As the arc of AI unfolds, investors will demand measurable results, robust data security and clear ethical guidelines, making it imperative for fintechs to establish trust. This may ultimately prove just as crucial as the technology they provide.