“AI” is today’s buzzword. But for some family offices, artificial intelligence is already changing the way they work and helping launch them into the future. While businesses of every stripe are exploring the benefits — and perils — of enhancing their operations with AI, family offices are uniquely suited to benefit from the technology.
A family office is essentially “a very small company with limited resources in terms of people and as many as 30 large, important external relationships,” said Paul McKibbin, a managing director at EY Private Family Advisory Services. As such, family offices increasingly look to technological solutions to handle some of the labor-intensive and costly tasks associated with doing business — such as parsing financial documents, performing legal research and cybersecurity.
“AI is real,” McKibbin said. “It’s happening, and it’s quite close to our daily work.”
THE HIGHLIGHTS:
- Family offices, as small companies, are uniquely suited to benefit from AI.
- AI is helping them handle labor-intensive tasks such as parsing financial documents, legal research and cybersecurity.
- Allowing AI to handle those tasks frees family offices to focus on other aspects of their lives.
- In addition, AI can help family offices make higher-level strategic decisions before investing.
Automating a lot of repetitive tasks with AI and machine learning is a no-brainer, said Danielle Valkner, a partner and leader of the U.S. family-office practice at PwC. But where AI really moves the needle is in optimizing resources.
“When we think about optimizing a family office,” Valkner said, “we think about people, process, technology and data.”
DELIVERING ‘FINANCIAL SUPERPOWERS’
A decade ago, when former Google executive Caesar Sengupta and some of his colleagues began to accrue personal wealth, they found little in the financial marketplace to address their needs and concerns.
“We realized that, for people like us who were fairly fortunate in life and professionals earning well, but not yet quite at the stage where we were rich enough to get good treatment from the private banks or to be able to set up our own family offices, there weren’t really many financial planning or help options available,” he said.
Now, as co-founder and CEO of Arta Finance, Sengupta uses AI to bring what he calls “financial superpowers” to a wealthy demographic previously not quite well-off enough to justify a family office — individuals with anywhere from hundreds of thousands to several million dollars in assets.
To that end, Arta has pulled together brilliant quants from the hedge fund world and hardcore techies from machine-learning hubs such as Google Research and Facebook Research and applied AI to investing research and portfolio management. Its first product is aptly called AI-Managed Portfolios, or AMPs.
THE GREAT EQUALIZER
High-net-worth investors working with third-party advisers may not be as aware of how AI can enhance the operations of their family office. That’s because those same advisers often are already employing AI behind the scenes to expedite processes such as parsing hedge fund K-1 forms and incorporating relevant data from those forms into tax returns.
AI is also being used to help family offices sift through volumes of legal documents to find the few records relevant to their specific situations.
Cybersecurity is another area where AI can help leverage a larger network of solutions to help family offices protect their data from bad players — who of course are also working at a scale previously unimaginable.
“Antiviral software on the desktop today is no longer driven by pattern matching,” McKibbin said. “It’s determining whether anything is occurring on your computer that seems out of the ordinary.”
And while many family offices may be reluctant at this point to use AI for portfolio management, McKibbin said it can help when making higher-level strategic decisions before investing.
“These families can take advantage of leading practices everywhere,” he said.
Said PwC’s Valkner: “There is a lot of opportunity there, especially as it relates to processing the activity on private investment. That is one segment of the financial services, asset wealth management industry that remains very manual. So reading the investor capital call statements, the investment affirmation statements, the valuation statements and processing them through the technology is something AI can be very effective at.”
THE PERSONALIZATION POWER OF AI
So far, Arta Finance has raised $90 million from around 140 angel investors, some of whom already have their own family offices. Those family-office owners are interested in AI’s equity investment capabilities, Sengupta said, because “it lets the family office focus on other aspects of their life,” such as private alternatives.
But where AI will really shine is in helping personalize an investment plan to a family office’s vision, he said. “One of the challenges with the financial industry today is alignment of interests,” Sengupta said. “One of the reasons everybody I’ve spoken with who set up a family office graduated to that was, ‘This is really focused on me.’ ”
EY’s McKibbin envisions a not-so-distant future where AI will even serve in part as the institutional memory of a family office. Answers to questions such as “Whom do we know?” or “Where is that document?” suddenly are instantly available.
Said McKibbin, “You’re starting to see the emergence of applications that take away some of that problem.”